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Daily Report: Sterling Extends Recent Rally, Dollar and Yen SoftSterling continues to ride on last week's post GDP upside surprise rally and extends gain against dollar. While there are doubts on the methodology of the European bank stress test, the pound is also supported by the fact that out of the 7 banks which failed the test, none of them is in UK. Commodity currencies are generally higher on broad based rally in Asian equities. The Japanese yen is soft, but manages to stay in tight range so far. Data front Japan saw merchandise trade surplus widened to JPY 456b in June, lower than expectation. Both exports and imports fell over the month on a value basis. Australian PPI rose much less than expected by 0.3% qoq, 1.0% yoy in Q2. The economic calendar is relatively lightly today and main focus will be on US new home sales, which is expected to climb to 320k annualized rate in June. |
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| Featured Technical Report | |
GBP/USD Daily OutlookDaily Pivots: (S1) 1.5297; (P) 1.5372; (R1) 1.5495; More. GBP/USD's rally extends further today and breaches 1.5470 to as high as 1.5499 so far. At this point, intraday bias remains on the upside for 1.5521 resistance. Decisive break there will confirm that whole fall from 1.7043 has completed at 1.4230 already and target 61.8% retracement of 1.7043 to 1.4230 at 1.5968 next. On the downside, below 1.5348 minor support will turn intraday bias neutral first. Also, note that failure at 1.5521, followed by break of 1.5123 support, will revive the case that fall from 1.7043 is still in progress and will flip intraday bias back to the downside for another low below 1.4230. |
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| Special Reports |
Speculators Remained Net Sellers Of USD For A Second WeekSpeculators sold -$1.18B last week, bringing the net short positions of USD to –$7.71B in the week ended Jul 20. This is the second week that USD fell in the net short territory and we believe negative economic data triggering worries over a slowdown and ease in sovereign crisis in the Eurozone are the major reasons. Stress Test Result Appeared to be Stronger than Expected. Stringency in QuestionThe CEBS's stress test result was out yesterday. 7 out of 91 European banks failed the test - failed to exceed the 6% Tier 1 capital ratio under the most severe scenario. These banks are Diada (Spain), Espiga (Spain), Unnim (Spain), Banca Civica (Spain), Cajasur (Spain), ATEBank (Greece) and Hypo Real Estate (Germany). According to the CEBS, the estimated aggregate shortfall is 3.5B euro. In a joint statement, the CEBS, ECB, and European commission said that, 'where the results of the exercise indicate that individual banks require additional capital, these banks should take the necessary steps to reinforce their capital positions through private-sector means and by resorting, if necessary, to facilities set up by Member State governments, in full compliance with EU state-aid rules'. |
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Trade Idea: GBP/USD – Buy at 1.5410Current breach of resistance at 1.5473 confirms recent upmove has resumed and further gain to 1.5510/15 (50% projection of 1.5125 to 1.5450 measuring from 1.5349), above would extend to 1.5550 (61.8% projection), however, loss of near term upward momentum should prevent sharp move beyond there and reckon 1.5600 would hold from here, risk from there has increased for a retreat later. Trade Idea: EUR/USD – Buy at 1.2840Despite Friday's selloff to 1.2794, the single currency did rebound from there (unfortunately we exited our long position entered at 1.2810 with only small profit), suggesting consolidation with upside bias would be seen, however, break of resistance at 1.2966 is needed to retain bullishness and extend the rise from 1.2732 to 1.3000, then 1.3028-29 (100% projection of 1.2732 to 1.2966 measuring from 1.2794 and previous high), break there would confirm upmove has resumed to 1.3090/00 later. | |||||||||||||||||||||||||||||||||||
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