US DOLLAR STRENGTHENS AHEAD OF EU SUMMIT
LEARN HOW TO TRADE WHEN THE TREND COLLAPSES
The US Dollar and Japanese Yen pushed higher overnight as Asian stocks declined, stoking demand for the go-to haven currencies. The MSCI Asia Pacific regional benchmark equity index fell 0.4 percent after the Bank of International Settlements (BIS) said despite central banks being “cornered” into prolonging monetary stimulus, accommodative policies“have their limits” in its annual report. The statement is anathema for traders hopeful that the Federal Reserve will help the fragile US recovery offset headwinds from sluggish performance in Europe and Asia with a third quantitative easing effort (QE3), which policymakers opted against last week.
The US Dollar and Japanese Yen pushed higher overnight as Asian stocks declined, stoking demand for the go-to haven currencies. The MSCI Asia Pacific regional benchmark equity index fell 0.4 percent after the Bank of International Settlements (BIS) said despite central banks being “cornered” into prolonging monetary stimulus, accommodative policies“have their limits” in its annual report. The statement is anathema for traders hopeful that the Federal Reserve will help the fragile US recovery offset headwinds from sluggish performance in Europe and Asia with a third quantitative easing effort (QE3), which policymakers opted against last week.
The economic calendar is nearly empty in European hours, putting the spotlight on a pair German and French bond auctions. Berlin will sell €3 billion in 12-month bills while Paris will offer €8.4 billion in 91-, 154- and 364-day paper. Markets will look to average yield and bid-to-cover readings to gauge sovereign stress in the region ahead of the two-day EU leaders’ summit slated to begin on Thursday. While the short tenor of the debt on offer would typically make for a quiet outing, the lack of anything more significant on the docket may force a response from price action.
Later in the day, the Dallas Fed Manufacturing Activity gauge comes into the spotlight. The release marks one of several key surveys traders will use to establish where the world’s top economy stands in June. Expectations call for the smallest decline in 3 months, which may help offset risk-averse tendencies in the near term. S&P 500 stock index futures are pointing firmly lower in late Asian trade however, warning that a meaningful reversal in sentiment will be an uphill battle.
Markets are under a bit of pressure in the early week, although most of the price action is still consolidative. But, with currencies broadly coming back under pressure in the latter portion of the previous week and into the new week against the US Dollar, it will be interesting to see if this price action is indicative of a resumption in the more prominent underlying US Dollar uptrend, or whether currencies are simply in the process of carving a fresh higher low ahead of the next upside extension.
Markets are under a bit of pressure in the early week, although most of the price action is still consolidative. But, with currencies broadly coming back under pressure in the latter portion of the previous week and into the new week against the US Dollar, it will be interesting to see if this price action is indicative of a resumption in the more prominent underlying US Dollar uptrend, or whether currencies are simply in the process of carving a fresh higher low ahead of the next upside extension.
Relative performance versus the USD Monday (as of 10:20GMT)
JPY +0.68%
GBP -0.21%
CAD -0.43%
NZD -0.68%
EUR -0.69%
CHF -0.70%
AUD -0.71%
Fundamentally, the key event for the week doesn’t come until Thursday and Friday in the form of the EU Summit, and we could therefore be in for an early week of directionless trade as market participants position ahead of the Summit. The expectation at this point is that EU leadership will afford both Greece and Spain additional time to get their respective budget deficits down. For now, we believe the key markets to watch are EUR/USD, with 1.2585 and 1.2440 the levels to watch above and below, and USD/JPY, which has recently found some renewed strength. Important short-term levels to watch in this market come in by 80.65 and 79.50.
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