Fundamental Currency Analysis – September 2nd 2014
USD: The U.S. Dollar opened broadly higher in Asian trading this morning, trading higher against all the majors and making a seven month high against the Japanese Yen. The U.S. Dollar Index is trading at 82.9160, up +0.1680 or +0.20 percent. Traders are expecting the U.S. economy to continue improving, making a stronger case for the Federal Reserve to raise interest rates. Traders are expecting improvements in manufacturing with ISM Manufacturing PMI (57.0) to be released later today.
EUR: The Euro continues weakening against the Dollar and other majors this morning after disappointing PMI data. Spanish Manufacturing PMI printed at 52.8 versus 53.4 anticipated, and Italian Manufacturing PMI, showing a reading of 49.8 versus 51.0 expected. This morning’s data include Spanish Unemployment Change (+25.5K), German Factory Orders (+1.6%) and EZ Retail Sales (-0.3%).
GBP: Sterling is trading lower against the Greenback but mildly higher against the Euro and the commodity currencies after UK Manufacturing PMI came out at 52.5 versus an expected 55.1 reading and Net Lending to Individuals increasing to +3.4B versus +2.4B anticipated. This morning will have Construction PMI (61.5) as the highlight for UK data.
CHF: The Swiss Franc continues selling off against the U.S. Dollar this morning after a disappointing SVME PMI release. The index came out at 52.9 versus an expected reading of 53.4. Swiss quarterly GDP (+0.5%) is expected later this morning.
JPY: The Japanese Yen made a seven month low against the Greenback this morning. The yen weakened in part due to news that Prime Minister Abe will be appointing an ally to the ministry in charge of reforming Japan’s pension fund. Economic data out today had Japanese Average Cash Earnings increase +2.6% y/y, notably higher than the consensus of a +0.9% increase.
AUD: The Aussie is trading lower this morning after the RBA rate decision. The central bank left the benchmark Cash Rate unchanged at 2.50%. RBA Governor Glenn Stevens said in the accompanying statement that, “Recent data showed an increase in inflation, with both headline and underlying measures affected by the decline in the exchange rate last year.” Australian quarterly GDP (+0.4%) is expected out later this morning.
NZD: The Kiwi lost ground this morning against the Greenback after ANZ Commodity Prices declined -3.3% versus a previous reading of -2.4% yesterday. No economic data is expected out of New Zealand today.
Highlighted Chart of the Day: USD/JPY
A daily bar chart of the USD/JPY currency pair appears above illustrating the recent upwards break from a notable medium term triangular consolidation pattern bounded by the converging red trend lines to reach a seven month high. The rate is also extending its divergence above its recently broken and now gently rising 200 day Moving Average shown in green. The rate’s overbought 14 day RSI appears in blue in the indicator box and may impede this strong upside move. (See additional technical analysis in the section below.)
Technical Analysis for the Majors
EUR/USD: The Euro made a new recent low again, this time at the 1.3114 level, and the rate remains under pressure in early trading today. It is trading well below its falling 200 day MA now at 1.3631. Its 14 day RSI remains in oversold territory at the 21.9 level and confirmed today’s new low, indicating downside momentum is intact. Resistance is seen at 1.3145/51 and in the 1.3220/41 region, and support for the rate appears at 1.3114 and below that at 1.3104. Outlook is bearish in the near and medium terms.
USD/JPY: USD/JPY rallied strongly today to make a new recent high at the 104.86 level in the Asian session, which was just below resistance seen at 104.91 and above that at 105.43. The rally accelerated once the rate exceeded good resistance in the 104.12/26 region, which now provides support. Additional support is seen in the 130.49/55 region. The rate’s 14 day RSI remains in overbought territory, currently reading at 77.4, and it did not confirm today’s new high. Also, USD/JPY extended its positive divergence from its now rising 200 day MA currently situated at 102.34. Outlook is near term bullish and mildly bullish medium term. (See highlighted chart above.)
GBP/USD: Cable traded lower this morning, pressured by selling ahead of the upper trend line of an important short term declining channel currently drawn at 1.6603. The parallel lower channel line currently supports the rate at 1.6426. The rate remains below its flattening 200 day MA now at 1.6754, while its 14 day RSI is in lower neutral territory at the 34.5 level. Resistance appears at 1.6443, and above that in the 1.6597/1.6656 region, with key support observed at 1.6534. Outlook is bearish near term, and neutral turning bearish medium term.
USD/CHF: The Swissy rallied to a new recent high this morning at 0.9206. The rate’s 14 day RSI lies just under overbought territory at 68.0, but it has not been supporting the recent rally. The rate extended is positive divergence above its rising 200 day MA now situated at the 0.8937 level. Outlook remains bullish in the near and medium terms.
AUD/USD: The Aussie fell to 0.9284 this morning, as the rate continues trading within a well-established 0.9201 to 0.9538 medium term trading range. Its 14 day RSI lies in central neutral territory at the 45.1 level, and the rate remains above its rising 200 day MA now at the 0.9212 level. Support is seen in the 0.9284/91 region, with resistance noted in the 0.9322/51 region and above that at 0.9373. Outlook has turned bearish near term and is bullish turning neutral in the medium term.
USD/CAD: The Loonie rose this morning to 1.0901, but remains below recent highs in the 1.0985/96 region and above good support at 1.0859 and 1.0809. Its 14 day RSI remains in central neutral territory at the 50.2 level, and the rate still lies below its flattening 200 day MA now at 1.0937. Outlook is bullish in the near term and neutral medium term.
NZD/USD: The Kiwi continued to consolidate this morning above key support at the 0.8345 level touched last Friday, and it showed an intra-day penetration above the upper trendline of its recent medium term down channel now drawn at the 0.8367 level. Its 14 day RSI turned lower within lower neutral territory and now reads at the 36.4 level. The Kiwi remains below its flattening 200 day MA now at 0.8515 that still has a mildly positive slope. Support is noted in the 0.8330/46 region and at the key 0.8309 level, with resistance seen in the 0.8388/96 and 0.8406/29 regions. Outlook is now neutral near term, and neutral turning bearish medium term.