Dow Jones Newsletter 05th Aug

ifcmarkets Intraday snapshot

EUR/USD

More weakness to the July 18 higher low at 1.4014 is the main threat, as the decline off 1.4537 has been upgraded. A break below Friday's Asian session low at 1.4055 is expected, and increasing EUR bear momentum would have scope for 1.3981 and 1.3940. Projected resistance lies at 1.4287, but corrective gains appear limited to 1.4203.

GBP/USD

The lower end of the 1.6226/1.6478 range is likely to be tested, following Thursday's weakness. There is increasing risk for a downside break below 1.6226, exposing 1.6163 and potentially the 1.618 Fibonacci extension target at 1.6028. Keeping 1.6226 intact would prompt a recovery towards 1.6321, and only above the latter would lift the tone.

USD/JPY

The dominant USD downtrend is looking to re-establish itself, and weakness to the 77.75 area is targeted. Thursday's peak at 80.25 has been left stranded, and only a sustained break above the orthodox intraday lower high at 79.35 would question the bearish USD outlook. Longer-term USD bears are still in control, and will look to force a return to this week's 76.29 low next week.

AUD/USD

The extent of this week's setback brings the important June 27 reaction low at 1.0391 within striking distance. Friday's Asian session low at 1.0424 is not secure, and is at risk from renewed AUD bear pressure targeting a downwave equality target close to the 1.0391 reaction low. Only a recovery above 1.0525 would question the bear threat, opening 1.0627 and 1.0679.

ifcmarkets Focus

The cost of saving the euro has just risen and it is a price that no one may be willing to pay. As the latest financial crisis unfolds, the future of the euro is now not only in the hands of European politicians but also in the hands of the U.S. and other major countries as well. And European politicians as well as the European Central Bank have helped to put it there. Over the last week, investor dissatisfaction with the second bail out for Greece has been nearly palpable as the bond yields of both Spain and Italy came under attack. The prime ministers of Spain and Italy may have wrung their hands and declared how unfair it all was. But, as for policy action? They did nothing. Then along came the ECB. Last month, the central bank refused to take off its hawkish hat and made the highly-questionable move of raising rates. Unfortunately, its soon-to-retire president Jean-Claude Trichet refused to take this hat off this time around. His idea of calming already tense markets was to throw them a little bone in the form of an increase in market liquidity and a resurrection of the bank's previous policy of supporting the bonds of peripheral debtors. But, this was not enough. Even as the euro sank Trichet failed to suggest that the bank's rate rise last month was a mistake and, despite the higher debt costs for Italy and Spain, the ECB failed to buy their bonds.

Europe

An eerie calm was prevailing in the currency markets ahead of U.S. non-farm payrolls data. The bloodbath that characterized markets at the start of European trading had largely vanished with Italian and Spanish bonds reversing their losses and European government debt insurance costs retreating from their opening highs. That kept currencies trading smoothly, for now. Italian GDP came in at 0.3% on the quarter, in line with expectations. However, worth noting is that European financial default costs hit fresh highs and that up to four members of the ECB governing council reportedly opposed the resumption of bond buying.

Asia

The euro recovered partly from an earlier plunge by early afternoon in Asia, though a sell-off in riskier assets in New York and London into the session had investors still on edge ahead of Friday's key nonfarm payrolls report in the U.S. After selling broadly late in New York and early in Asia, the euro recovered some of its lost footing in recent action against both the dollar and the Swiss franc. After the Dow Jones Industrial Average lost more than 500 points Thursday, the euro had earlier pushed to a fresh all-time low against the Swiss franc and its lowest point against the dollar since July 18. Partly helping the bounce-back was a retracement for stocks in Hong Kong and Japan, with those markets coming off their session lows. Traders said flows were subdued ahead of Friday's nonfarm payrolls report. "It's not about fundamentals right now, it's about preservation of capital with concerns about liquidity in general," said Sue Trinh, a currency strategist with RBC Capital Markets in Hong Kong.

World

The euro tumbled to a new record low against the Swiss franc Thursday in New York, as investors unnerved by sovereign-debt concerns and slowing global growth sought shelter in safe-harbor assets. Minutes before the close of the U.S. session, the single currency--which was already broadly under pressure--tumbled to its lowest level ever against the franc at CHF1.0757. Widening concerns about the euro-zone debt crisis and a sluggish global economy sent risk-related assets sharply lower. The euro largely tracked falling stocks, as the Dow Jones Industrial Average plunged more than 500 points by the close.