Time of writing: 03:30 GMT

The Big Picture

Higher yields supporting USD: The dollar regained ground throughout much of the day Friday, closing slightly positive against most currencies as US yields moved higher. 10-year Treasury yields rose 6 bps on Friday and continued gaining today, rising 3 bps during Asian trading Monday morning.

Friday’s economic news was mixed, with the U of Michigan consumer confidence index slipping to 80.0 in August from 85.1. The reading was the lowest in four months and well below the forecast 85.5 reading expected by economists. However, consumer confidence is heavily influenced by gasoline prices, which have fallen back since the August survey was done, and so the market was not that strongly affected by the number. On the other hand, housing starts rose 5.9% mom in July to an 896k annual pace while building permits for future home construction jumped 2.7 % to a 943k pace. The rise in housing starts corroborated the message from Thursday’s National Association of Home Builders (NAHB) index and suggested that the construction sector will remain strong and will contribute to economic growth this year despite higher rates, which makes the Fed’s “tapering off” QE more likely.

This week’s figures got started overnight with Japan’s trade data. The trade deficit widened more than expected to JPY 944bn (SA) in July from JPY 599bn in June, as imports surged, outpacing the growth in exports. The news initially sent USD/JPY higher but the pair later fell back.

Activity today is likely to be quiet as there are no major indicators on today’s calendar. Spain will auction 10-year government bonds. The focus of attention this week will be on Wednesday when the FOMC releases the minutes from its July meeting. We get preliminary Chinese and Eurozone PMI reports on Thursday and details of 2Q German and UK GDP data on Friday.

The Market

EUR/USD

• EUR/USD moved lower during Friday’s trading session after finding support at the 20-period moving average. Currently the pair is trading between the 1.3300 (S1) and 1.3400 (R1) psychological levels. A clear break above the 1.3400 (R1) level will signal the exit of the long term (daily chart) trading range, triggering a bullish extension towards higher resistance areas. Furthermore, the 20-period moving average is above the 200-period moving average, favoring the scenario for new short term highs.

• Support: Support is found at the 1.3300 (S1), followed by the 1.3231 (S2) and 1.3132 (S3) respectively.

• Resistance: The main resistance level identified on the 4-hour chart is previous week’s highs at 1.3400 (R1). The next in line are at 1.3517 (R2) and 1.3706 (R3), found from the daily chart.

USD/JPY

• USD/JPY moved sideways during Friday’s trading activity, remaining into the downtrend blue channel. If the bears appear more aggressive than the bulls and manage to enforce their momentum, they should lead the pair below the psychological level of 97.00 (S1), towards the 95.77 (S2) level and near the critical area of 95 where the long term head and shoulders neckline lies.

• Support: Support is at the psychological 97.00(S1), 95.77 (S2) and 93.77 (S3).

• Resistance: Resistance levels are the 98.56 (R1), followed by the psychological round number of 100.00 (R2) and the 100.84 (R3).

GBP/USD

• GBP/USD moved sideways, making minor moves, during Friday’s session, remaining above the 1.5569 (S1). The pair is currently trading below the 1.5674 (R1) and a break above that level will drive the pair towards June’s highs at 1.5752(R2). Moreover, the pair remains above both the 20-period and the 200-period moving average, providing bullish indications. On the long term (daily) chart is moving sideways in a trading range between the 1.4811 and 1.5597 boundaries.

• Support: Support levels are at the 1.5569 (S1) (previous resistance), 1.5431 (S2) and 1.5200(S3).

• Resistance: Resistance is identified at 1.5674 (R1) followed by the 1.5752(R2) and 1.5840 (R3) (daily chart) levels.

Gold

• Gold moved higher during Friday’s session, currently trading near the 1376.73 (S1) level. A daily close above that level will establish a clear upward break and bulls will have to face June highs at 1422.09 (R1). Moreover, the 20-period moving average remains above the 200-period moving average, giving some bullish indications for the precious metal. On the long term (daily) chart the 20-day moving average remains below the 200-day moving average, thus we believe is still correcting its long term downtrend.

• Support: Support levels are at 1376.73 (S1) followed by the 1347.27(S2) and 1320.78(S3).

• Resistance: Resistance is identified at 1422.09(R1), followed by the 1485.18(R2) and 1540.36(R3) (daily chart).

Oil

• WTI moved sideways during Friday’s session and is still testing the resistance level of 107.53 (R1). If buyers achieve a clear break of that level, they will have to face the 108.85 (R2) level which is also the upper boundary of the short term trading range. As we mentioned in previous comments we should wait for a close outside the trading range, in order to have clear indications for the next probable directional move.

• Support: Support levels are at the psychological 105.00 (S1) level, at the 102.62 (S2) and 100.80 (S3).

• Resistance: Resistance levels are 107.53 (R1) and the recent highs of 108.85 (R2). The next in line resistance level is identified from the weekly chart at 114.43 (R3).

BENCHMARK CURRENCY RATES – DAILY GAINERS AND LOSERS

MARKETS SUMMARY