Risk forex has opened the new week on a relatively unexciting note, with EUR/USD pushing to 1.2275, AUD/USD to 1.0257 and GBP/USD to 1.5594 before sellers emerged.
After a strong run up on Friday night on the back of signs of stabilisation in the Chinese economic figures, JP Morgan’s better-than-expected Q2 earnings print and general oversold conditions in equities, saw traders sit back, finding little inspiration by the lack of real market moving stories over the weekend.
Sterling seems to be nicely supported on the back of the BOE and UK government announcing details of their funding for lending scheme, and the market seems to be rewarding the currency for the government’s pro-active policies. AUD/USD continues to frustrate the growth bears who have been looking for a move below parity, and the pair is sitting nicely above 1.02 and clearly the target this week for the Aussie bulls is the 200-day moving average at 1.0276, ahead of the recent high at 1.0329. The highlight for the week for all risk currencies is Ben Bernanke’s speech to congress on Wednesday and subsequently the US House on Thursday; any signs that he is primed and ready to undergo a third round of asset purchases (QE3), risk forex, notably AUD/USD will do nicely.
The RBA minutes released on Tuesday will also be closely watched by a market that is very much divided on the actions of the RBA in its August meeting. Currently, eleven out of twenty-four economists are calling for an August cut, while the OIS swaps market is pricing in a 65% probability of a 25 basis-point move. We favour the RBA to maintain rates at currently levels; however next week’s Q2 CPI print could certainly throw an element of doubt here, with consensus showing the annual rate at a 13 year low, below the RBA’s target. We will be closely watching US retail sales and empire manufacturing (released 22:30), while Citigroup (announced at 22:00) are the highlight in today’s US company reports.