EUR & GBP Locked In Downside Consolidation

Thursday’s trading can best be described as ‘scrappy’. There was no dominant theme for traders to cling to so they were cautious and reverted to type, following equity markets moves as a signal for risk appetite and as a barometer for the Dollar.

The CHF seemed to be the subject of intervention (again there was no official comment from the SNB) as, on two occasions, the Swiss Franc took a sharp dive lower within a few hours, only to edge back a little. US data confirmed something that has been growing as a matter of concern overseas; namely, the persistence of unemployment. US initial claims were higher than expected and, alongside other nations including the United Kingdom, look like being a matter of increasing concern in the coming months and years. However, despite these worries, US equities managed to stage a strong late rally which saw the DJIA and S&P close over 2% up on the day and led to a quick Dollar decline to end the proceedings. The week drew to a close in the Far East in a calm fashion.

With NZ GDP proving to be lower than expected (-1.0% QoQ, forecast was -0.7%), NZD/USD slipped from 0.6450 to 0.6410. It later recovered after the Dollar slipped across the board. Risk appetite this week has been of a volatile nature with renewed bounce in risk leading to a weaker greenback overnight. Again there was some demand for JPY crosses from the Japanese investment community, particularly AUD/JPY which prompted a round of stops in AUD/USD above 0.8050 to be triggered. This had the knock on effect of pushing EUR/USD higher to trigger stops above 1.4020 and it was a similar story for GBP/USD which rose to 1.6440.

With no new influences on the market, trading petered out and there was very little movement as traders seemed to be glad to put a lackluster week behind them. In the US, today’s key economic releases are the May personal income and spending report at 12:30 GMT and the final June reading of Michigan consumer sentiment at 13:55 GMT. In terms of speakers, Dallas Fed President Fisher (FOMC non-voter) will speak on the US economy at 17:00 GMT.

EurUsd is locked in a 1.3880 to 1.4180 range and with sentiment still elevated we suspect that the weekly cloud high at 1.4185 will continue to provide a meaningful barrier; as it has done for the last month.

GbpUsd Intraday we are resigned to more erratic choppy ranging as consolidation continues. Outside of 1.6190 or 1.6625 is needed to break the current status quo.

UsdJpy Overbought intraday signals prevailed yesterday and USD/JPY slumped back within its recent range. The absence of material movement suggests more ranging between 94.90 and 96.70 into next week.

UsdChf USD/CHF remains broadly capped around 1.1000 indicating that outside the central bank there is not a lot of interest to pay up for the dollar. Indeed if USD/CHF were to slip back below support at 1.0875 then it would suggest a dip back down to 1.0700 and range trading thereafter.

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