Dollar softer as sentiment stabilizes

USD is trading softer against the majors (except for the JPY) as sentiment stabilizes. Global equities are trading mixed, US stock futures are currently in positive territory, and Treasury yields are higher across the curve with 10-year yields currently up 3bps to 1.616%. Concerns about the Spanish bank bailout are being eased somewhat as the ISDA announced that the proposal is not likely to trigger a credit event due to subordination while S&P indicated that Spain’s rating remains intact as the government’s debt will rise to just over 80% of GDP if all of the proposed €100B were to be utilized. The May import price index fell by the most since June 2010 with a -1.0% monthly decline in May (prior 0.0%). Due out at 1000ET is the IBD/TIPP economic optimism reading for June.

• EUR is mostly weaker except against the USD and JPY. Despite some clarification on the effects of the Spanish bank bailout, many uncertainties remain. Greek elections this weekend and meetings between key officials are likely to keep traders cautious and nimble. With positioning stretched to the downside, risks are now to the upside as any positive developments may result in short covering. Sovereign yield spreads are broadly mixed, however Spanish and Italian yields are slightly higher today. There was no significant economic data out of Europe today. Technically, EUR/USD may find resistance around the 21-day SMA (currently at about 1.2560) ahead of the horizontal pivot and 38.2% Fib retracement (of the decline from May highs to June lows) which comes in around 1.2670.

• CAD firmer against most of the G10 currencies as sentiment stabilizes and underperforming the commodity currencies (AUD, NZD) amid weaker crude oil prices. WTI is lower by about -.025% at time of writing as OPEC said that global markets remain well supplied with oil. USD/CAD is back below the 1.03 figure and sees the next significant support level around 1.02 which is where the 38.2% Fibonacci retracement of the rally from 2012 lows to highs resides. There is no economic data due out of Canada today.

• GBP is mostly firmer except against the NZD, AUD, and SEK despite weak economic data. U.K. manufacturing production in April contracted by -0.7% m/m (cons. -0.1%) while yearly figures showed an unexpected decline of -0.3% (cons. +0.4%). Industrial production was unchanged in April on a monthly basis and fell by -1.0% y/y as expected. Later today at 1000ET, the May NIESR GDP estimate is due and Bank of England Deputy Governor Tucker will be speaking this afternoon. GBP/USD sees rising trendline support around the 1.5450 level with key upside resistance currently around the 1.56 figure.

• JPY is weaker after the IMF said that the “yen is moderately overvalued from a medium-term perspective” and suggested that the Bank of Japan ease monetary policy further. The IMF also indicated that monetary policy alone cannot beat deflation and supported fiscal reforms by Japan. This puts pressure on the BoJ to expand stimulus at its meeting later this week and the increased speculation of additional measures has seen the yen trade softer today. USD/JPY continues to consolidate above the 21-day SMA after breaking above the nearly 3-month long bear channel. The pair sees the 100 and 55-day SMA’s converge ahead of the weekly ichimoku cloud top which is likely to cap the upside in the near term.

Source: Forex.com

12.06.2012