The earnings versus macro economic data story continues to play havoc with risk appetite as capital rotated back into the greenback after yesterday’s poor US July consumer confidence figures. The figures came in at 50.4 against an expectation of 51 which prompted some profit-taking as investors became more risk-averse, sending crude oil to its biggest fall in 3 weeks. 

The euro had initially been boosted by a rise in German consumer confidence when Germany’s GfK institute said its forward-looking overall indicator for August rose to 3.9 points from 3.6 points in July, its highest level since November 2009, but the failure to push much beyond 1.3030 has caused some profit taking.

The pound on the other hand is a different story continuing to gain ground after positive UK CBI industrial trends data came in way above expectations at a 39-month high of +33% from -5% in June, boosting hopes that positive indications to Q3 could indicate that the economy will continue to grow in line with the pace seen in the Q2 GDP figures last week.

The release of weaker then expected Australian CPI earlier today dealt a blow to Aussie bulls, as it came in at 0.6% undershooting expectations of 1%, and tempering expectations of further rate hikes in the near term, and certainly there appears little chance of any change in policy at next weeks scheduled Reserve Bank rate meeting, causing the Australian dollar to plunge back below 0.9000.

Gold also tumbled lower falling through its trend line support at $1,176 from the October 2008 lows towards the 200 day moving average support at $1,148.30.

In data out today US durable goods for June will be watched for any further evidence of macro economic weakness in the US economic recovery. If previous disappointing data is anything to go by then markets may be disappointed in their expectations of an increase of 1% against May’s decline of -0.6%.

EURUSD – another new high yesterday around 1.3045 but the single currency continues to find it difficult to sustain any punch in its rallies, despite the dips also being fairly shallow as well.

The lack of follow through on the upside remains a concern for the test towards the 1.3125 38.2% Fibonacci level, however while above Friday’s lows around the 1.2840/50 level we can’t rule it out. Yesterday’s fall rebounded from around the 1.2950 area so the euro should find some support around there as well.

A break below Friday’s lows around 1.2840/50 re-targets the 1.2730/40 area.

GBPUSD – yesterday’s CBI industrial trends data gave the pound another push in the right direction as it closed above its 200 day moving average for the first time since January this year, as well as closing above 1.5560 its 50% retracement level of the down move from last November’s highs at 1.6880 and the lows this year at 1.4230.

The pound should now find support around the previous highs around 1.5520 as well as the 1.5330/40 area as it looks set to test 1.5870 the 61.8% retracement level of the same down move.

Long term trend line support levels, remain around the 1.5240/50 area, from the June lows at 1.4350.

EURGBP – a brief spike above 0.8410 yesterday to 0.8416 was swiftly swatted back. While the euro remains stuck below this pivotal level at 0.8400/10 area then the potential remains for further losses on a break through support at the 0.8320/30 level.

Back above the 0.8400/10 level would re-target last week’s highs around 0.8520/30 via resistance at 0.8470. A break below 0.8320/30 back towards 0.8240, while 0.8410 caps.

USDJPY – the dollar continues to squeeze those yen longs but so far the 88.00/10 level has remained solid. A close above here would signal dollar gains back towards 89.20/30.

While on the downside the 86.25 support remains the key obstacle towards further yen gains towards last year’s yen lows at 84.80. A break above 88.00/10 would re-target the 89.20/30 level while a break of 84.80 would look to target the 1995 lows below 80.00.

Michael Hewson

Market Analyst