Mid-day FX Market Analysis

USD: The Dollar has shaken off early pressure and is posting moderate gains this morning, but still has plenty of work ahead in order to fully recover from last week’s severe chart damage. While an in-line reading for Chinese GDP provided some relief for global risk appetites and eroded a portion of the Dollar’s safe-haven support, fresh anxiety out of the Euro zone is providing a source of strength this morning. However, the Dollar will need to overcome recent dovish comments from Fed Chairman Bernanke in order to fill in the chart gap up to 83.64 basis the September futures. This morning’s Retail Sales number could provide an added boost to the Dollar, but US data will clearly need to avoid any negative surprises early this week in order for prices to fully regain upside momentum. The Dollar should climb up towards the 83.50 level once today’s US data is digested by the market, and therefore the Dollar looks to maintain a positive tone throughout the balance of today’s trading session. The Commitments of Traders Futures and Options report as of July 9th for US Dollar showed Non- Commercial traders were net long 29,124 contracts, an increase of 13,520 contracts. The Commercial traders were net short 36,529 contracts, an increase of 15,049 contracts. The Non-reportable traders were net long 7,405 contracts, an increase of 1,529 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 36,529 contracts. This represents an increase of 15,049 contracts in the net long position held by these traders.

EUR: The September Euro may have seen a brief rally in the wake of last night’s Chinese data, but fresh concerns from the Euro zone are starting to weigh heavily on prices this morning. Last Friday’s French credit downgrade from “triple-A” status may not have come as a total surprise to the market, as the two other major ratings firms have earlier made that move. Even so, it provides another piece of evidence of how peripheral EU problems are negatively impacting “core” Euro zone nations. Problems in Portugal, Greece, and other nations continue to elude any lasting solutions and with the ECB signaling accommodative monetary policy going forward, it will be difficult to put together any sort of rebound back towards last week’s spike highs. The September Euro will find near-term support around the 130.10 level this morning, and is likely to remain on the defensive during the early part of this week’s trading. The Commitments of Traders Futures and Options report as of July 9th for Euro showed Non-Commercial traders were net short 40,050 contracts, an increase of 27,827 contracts. The Commercial traders were net long 62,142 contracts, an increase of 39,125 contracts. The Non-reportable traders were net short 22,092 contracts, an increase of 11,298 contracts. Non-Commercial and Non-reportable combined traders held a net short position of 62,142 contracts. This represents an increase of 39,125 contracts in the net short position held by these traders.

GBP: The September Pound has been able to bounce back from a retest of last Thursday’s post gap-low, but remains fairly sluggish early on in this week’s trading. The Pound continues to be weighed down by dovish rhetoric from Bank of England officials during the past few weeks, and may have to wait until the market digests BOE meeting minutes later this week to have any chance of regaining upside momentum. The September Pound may find support around the 150.14 level, and looks to remains on the defensive over the next few sessions.

JPY: The September Yen held up fairly well during Asian trading hours, but found fresh headwinds this morning and appears headed well below the key 100.00 level early this week. An in-line Chinese GDP reading has dampened flight-to-safety support for the Yen this morning, which is finding little if any benefit from anxiety in the Euro zone. There may be some reluctance to take the Yen strongly to the downside in front of Japanese Upper House elections later this month, as a decisive victory by the ruling LDP/New Komeito coalition could lead to diminished efforts for reform. However, the Bank of Japan will still have a clear mandate for tackling Japanese deflation, and will keep with their aggressive easing measures well into the future. The September Yen may slide down towards the 99.82 area with a positive reception for US Retail Sales data, and looks to be heading back towards the early July lows over the next several weeks.

CHF: The September Swiss is finding moderate pressure this morning, but continues to hold within the upper portion of last week’s sizable trading range. This morning’s Swiss PPI showed some measure of progress with fighting that nation’s ongoing deflation, but carryover pressure from the Euro zone is likely to weigh on the Swiss Franc early this week. The September Swiss should find near-term support around the 105.05 level, and may need to see tangible improvement with global risk sentiment in order to climb back towards last week’s highs.

CAD: The September Canadian is finding moderate pressure this morning, and continues to slide further away from last Thursday’s monthly high. While last night’s in-line Chinese GDP number provided some near-term relief to the Canadian Dollar, lukewarm energy prices have taken their toll and are dragging prices further to the downside. The September Canadian should find support around the 95.65 level this morning, and will need plenty of help from outside markets to put the brakes on this current pullback.

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