Daily Technical Analysis 12 Key Pairs

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Watch out for JPY and GBP.

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Asia Session
The action so far this week has been dominated by a rally in the USD but today traders looked to consolidate recent gains perhaps setting up for another leg higher later. EUR/USD held below 1.5450 while USD/JPY continues to trade below 107.50 but both pairs have given little back and look to extend the USD rally.

Japan continues to post strong data as Q1 real GDP was 1%, better than expectations of .9%. CGPI came in at 4.7% year over year better than the 4% expected. We saw JPY crosses initially trade a bit lower but came back bid after the initial reaction. Japan continues to report higher inflation which could spur the Bank of Japan to eventually increase rates (JPY positive) but this could be a late 2008 or 2009 story.

Looking forward, we have the Bank of Japan rate meeting later this week as well as US CPI. Inflation continues to dominate the minds of central bankers and look for it to continue to be a driving force in currencies. Higher inflation could prompt higher interest rates but at the expense of slower growth. Balancing these two could prove difficult and make for more volatile markets.

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New York Session

The Greenback managed to hang on to its gains in NY trading for the most part, but lost some ground to the Euro. EUR/USD opened the session near 1.5425 and dipped all the way down to 1.5379 on the much better than expected US retail sales report. Retail sales rose +1.0% in May, doubling expectations, and the April number was revised up from -0.2% to +0.4%, to boot. Given that it was the expectation of a solid retail sales report that had carried the USD overnight, the report served merely as confirmation for the gains and the dollar was unable to rally much more. The USD pared gains a touch and EUR/USD was sitting near 1.5436 at the NY close.

The US dollar fared much better against the Yen, as US bond yields rocketed to the highs for the year. The 2-year note surged 23 bps (now up about 70 bps on the week) to 3.04% while the 10-year added another 14 bps to 4.21%. This helped boost USD/JPY from an open near 107.70 to around 107.95 at the close.

Perhaps the biggest takeaway from the range-bound trading session was that the superb US retail sales report led the market to fully price in a 25 bps Fed rate hike by September. The market now awaits US consumer prices data for May, due up tomorrow at 8:30 NY time, to confirm or refute this outlook. The consensus is for a 0.5% monthly increase on the total CPI and a modest 0.2% increase excluding food and energy. An upside surprise here will further empower the inflation hawks on the Fed and could help carry the USD to new monthly highs.

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New York Session

It was a pretty eventful morning followed by a relatively inactive afternoon in NY trading. The USD sold off in the early hours on the back of weaker than expected economic data out of the US and oil making a push for $140/bbl. The NY Empire manufacturing index for June came in much weaker than expected at -8.7 from -3.2 the prior month, while the June NAHB housing market index fell to 18 from 19 -- matching the all-time low set back in December. Both indicators suggest continued weakness in the US economy and likely cast some doubt on the Fed Chairman’s comments last week that the downside risks to US economic growth have fallen.

This helped propel EUR/USD to a session high near 1.5518 after opening near the 1.5462 mark. The Euro would pare gains to close at around 1.5475, however, pushed lower in part by some more hawkish commentary from Richmond Fed President Lacker who said that inflation expectations remain above his comfort level.

The Yen managed to gain some ground against the Greenback, though still elevated US yields kept a firm floor under USD/JPY near the 108.00 mark. While the 2-year Treasury note was practically flat at 3.03%, the 10-year yield rose about 2 bps to 4.27% on the day. USD/JPY opened the session near 108.29 and was sitting at roughly 108.22 when NY trading came to a close.

The decline in oil prices also helped put a floor under the US dollar. Oil opened trading with a vengeance, screaming all the way up to just shy of $140/bbl on news of a fire at an oil field in the North Sea shutting down 150k barrels of production and a forecast from the world’s biggest natural gas company that oil will hit $250/bbl by 2009. Further reassurance that Saudi Arabia will increase output, however, helped pare the gains in oil and the commodity would actually end the day roughly $1 lower at $133.94/bbl.

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New York Session
Published: June 18, 2008 5:15 PM



The US dollar suffered a slow grind lower in the NY session as the absence of economic data and central bank speak had the market focusing on stocks and bond yields. Poor earnings results early in the session set the tone for US stocks and the Dow would end down more than 130 points lower at 12,029 -- it even slipped below the physiological 12,000 mark for a brief moment. EUR/USD opened the session near 1.5484 and was sitting near 1.5535 at the close of NY trading. We expect some more pronounced price action in the cross tomorrow on the back of key US economic data (jobless claims, Philly Fed, and leading indicators).



The Yen gained against the Greenback as plunging US stocks and lower bond yields set the tone once again. The 2-year note yield fell 4 bps to 2.85% while the 10-year bond slipped 6 bps to 4.13% on the day. This drove USD/JPY down from an open near 108.26 to 107.88 at the close. The 107.90/80 area still looks to be very important support for USD/JPY and we likely need to see a slip below 107.60 for a sharp move to the downside.



Sterling had a great session against the USD, rallying more than 100 points in the span. GBP/USD opened near 1.9495 and ticked up to a close near the 1.9600 mark by the end of NY trading. UK retail sales due up at 4:30ET (London session) will be critical to watch as they could provide confirmation of weakness in the UK economy. A weak number would also support comments from the ECB’s Mervyn King earlier today that growth is slowing appreciably. The market is looking for a -0.1% MoM result for May from a prior -0.2%. Sterling will likely take a hit on a below consensus result.