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Risk Correlated Currencies Most At Risk on Renewed Fears of Global Downturn
Written by article default Monday, 13 June 2011 07:10
A market that had been so well bid risk over the past several months is starting to capitulate, with any sense of confidence or certainty over the outlook for the global economy seriously in question. A combination of ongoing problems relating to Greece and the Eurozone, weakness within the US economy, softer economic data out of the developed economies, and some unnerving monetary policy tightening moves out of South Korea, India, Brazil, and potentially China once again, have reminded global investors that there are still a number of variables that could very well catalyze a double dip recession.
Positioning data from some of the major banks are not only now showing a paring back of risk related positions, but are also showing the establishment of some fresh short risk trades. The Dow has dipped back below the 12k level and global equities could very well come under some accelerated pressure in the days ahead should things continue the way they have been. There are a number of key economic releases due out from China tomorrow which include CPI and industrial production, and this could prove to be yet another source of volatility and potential risk selling should the data disappoint. Investors will also be watching the Eurozone developments closely with a resolution to the Greek crisis needed before the upcoming June 23-24 Summit. Failure to come up with a resolution ahead of the Summit could seriously worsen the Euro’s status.
As such, from a currency perspective, we would expect to see Euro, Aussie, Kiwi, Cad, and Sterling all exposed, with the Yen and Franc open to underperformance against the buck to a lesser extent.Looking ahead to the European and North American economic calendars are completely barren, with the only notable events coming in the form of some official speak from Bank of England’s Weale and Fed Lacker. US equity futures and gold prices are flat, while oil tracks moderately lower into the European open.
ECONOMIC CALENDAR
TECHNICAL OUTLOOK
EUR/USD: Rallies have stalled out just ahead of the 78.6% fib retracement off of the major 1.4940-1.3970 move, and the market could finally be in the process of carving out a fresh lower top by 1.4700 ahead of the next major downside extension back towards the 1.3970 recent trend lows. From here, look for a daily close below 1.4300 to accelerate declines, while only back above 1.4700 delays and gives reason for concern. Look for intraday rallies to now be well capped ahead of 1.4550.
USD/JPY: After undergoing a fairly intense drop off from the 85.50 area several days back, the market looks to have finally found some support in the 80.00 area and could be in the process of carving out some form of a base. Look for setbacks to continue to be well supported around 80.00 with only a close back below 79.50 to give reason for concern. From here we see the risks for a fresh upside extension back towards the recent range highs at 85.50 over the coming weeks and a break and close back above 81.00 will help to confirm.
GBP/USD: Rallies have been very well capped in the 1.6500’s with the market looking like it wants to carve out a fresh lower top by 1.6550 ahead of the next downside extension below 1.6060. The recent daily close below 1.6285 reaffirms outlook and should accelerate declines, while ultimately, only back above 1.6550 negates. From here, look for intraday rallies to be well capped ahead of 1.6350.
USD/CHF: Despite the intense downtrend resulting in recently established fresh record lows by 0.8325, short/medium/longer-term technical studies are looking quite stretched to us, and we continue to like the idea of taking shots at buying in anticipation of a major base (currently long 0.8350). Look for a daily close back above 0.8450 to encourage bullish reversal prospects, while only a drop below 0.8300 delays.
Written by Joel Kruger, Technical Currency Strategist
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