EURUSD Slides Under 1.22 Despite Stable Bond Yields

The Japanese Yen and the US Dollar are the top performing majors to start the week, with high beta currencies and risk-correlated assets paring their gains from Friday in mostly quiet trading to start the week. Euro-zone inflation data for June showed that prices remained stable, perhaps a sign that the over €1 trillion injected since late-December 2011 may finally be circulating back into the system. Regardless, sticky prices mean that the European Central Bank is likely to be more cautious about further easting measures; the European Central Bank cut its key interest rate below 1.00% for the first time ever earlier this month.

Looking around the globe, concerns over China are in full-swing. The Shanghai Stock Exchange Composite was slammed, dropping nearly 1.75% as it closed at its 2012 low and its weakest reading since March 2009. Meanwhile, European bond and equity markets are stable, which could be setting a base for the Euro to work off of if risk-appetite reemerges in the North American session today. The Italian 2-year note yield has risen to 3.548% (+4.1-bps) while the Spanish 2-year note yield has increased to 4.355% (+7.0-bps). Similarly, the Italian 10-year note yield has moved higher to 6.067% (+3.6-bps) while the Spanish 10-year note yield has risen to 6.661% (+8.7-bps); higher yields imply lower prices.

RELATIVE PERFORMANCE (versus USD): 10:37 GMT

JPY: +0.24%

NZD: -0.09%

AUD: -0.09%

CAD: -0.09%

GBP:-0.27%

EUR: -0.49%

CHF: -0.50%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.12%(+0.01% past 5-days)

ECONOMIC CALENDAR

While the bulk of the key US data is due in the middle of the week, the USD Advance Retail Sales report for June released at 08:30 EDT / 12:30 GMT is of significance. As an insight into not only consumption but also consumer confidence, the June sales report is the most significant piece of data due today across the globe. Given the Federal Reserve's outlook, a weak print could weigh on the US Dollar and bolster risk-appetite as investors raise their bets for another round of quantitative easing.

TECHNICAL OUTLOOK

EURUSD: Short-term technical stress has been relieved following Friday's rally off of the fresh yearly lows set at 1.2161. We remain bearish as the EURUSD has yet to complete its measured move from its May 1 decline, and over the coming six-weeks, we are looking for a sell-off into 1.1695-1.1875. Near-term resistance comes in at 1.2250/60 and 1.2285/90. Above that, interest lies at 1.2360/65, 1.2400, and the crucial 1.2440/80 zone (Symmetrical Triangle support). Support comes in the 1.2155/65 zone then 1.2055/60 (Bollinger Band).

USDJPY: The USDJPY is working on an Inverted Head & Shoulders pattern off of the June 1 low, with the neckline coming in at 80.60/70. Only a daily close above this level will signal the commencement of this pattern. With the Head at 77.60/70, this suggests a measured move towards 83.60/70 once initiated. Near-term support comes in at 79.00/05 (200-DMA). Price action to remain range bound as long as advances are capped by 80.60/70.

GBPUSD: Friday's close above the 10-DMA appears to be a fluke, with the pair trading back towards it after being rejected at the 20-DMA both on Friday and today thus far. With new monthly lows set last week at 1.5390/95, we suspect the trend is lower in the near-term. A daily close above 1.5580 reverses this trend and suggests a test of the monthly high at 1.5720/25. Near-term support comes in at 1.5460/65 then 1.5390/1.5405 (monthly low, Bollinger Band).

AUDUSD: The pair has leaked lower thus far on Monday, failing once again at the 100-DMA. Near-term resistance comes in at 1.0250/55 and 1.0280/85. Support now comes in at 1.0135/55, 1.0095/1.0105, 1.0080 (former intraday swing highs), and 1.0000/05 (50-DMA).

--- Written by Christopher Vecchio, Currency Analyst

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