Japanese Yen Strength Persists; EURUSD Consolidates

Risk-aversion is the tone across the board on Wednesday as US equity futures have declined, commodities have sold off, and the Japanese Yen is the top performer. In the wake of this, the Euro is leading losses (though quizzically, the Australian Dollar is the second best performer against the US Dollar on the day) as the German 2-year note yield fell to -0.06%, perhaps one of the best indicators that uncertainty remains high among investors.

Despite yesterday's promising results from the Spanish bond auction, Spanish debt is back under pressure which is adding to the Euro's woes. The Italian 2-year note yield has pulled back to 3.426% (-7.3-bps) while the Spanish 2-year note yield has risen to 4.802% (+21.0-bps). Similarly, the Italian 10-year note yield has dropped to 5.973% (-3.9-bps) while the Spanish 10-year note yield has risen to 6.767% (+5.1-bps); higher yields imply lower prices.

RELATIVE PERFORMANCE (versus USD): 10:55 GMT

JPY: +0.13%

AUD: -0.09%

CAD: -0.14%

GBP: -0.32%

CHF:-0.48%

NZD: -0.49%

EUR: -0.50%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.19%(-0.48% past 5-days)

ECONOMIC CALENDAR

There are a few pieces of data on the docket today that are worth paying attention to during the North American trading session. At 08:30 EDT / 12:30 GMT, USD Building Permits and Housing Starts for June will be released, and the outlook is mixed between the two reports which could lead to some additional risk taking. At 10:00 EDT / 14:00 GMT, Federal Reserve Chairman Ben Bernanke will continue his Semi-Annual Monetary Policy Report. At 14:00 EDT / 18:00 GMT, the Federal Reserve's Beige Book will be released.

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 1.2285/90 and 1.2360/65. Above that, interest lies 1.2400, and the crucial 1.2440/80 zone (Symmetrical Triangle support). Support comes in at 1.2250/60, the 1.2155/65 zone then 1.2120/25 (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: The pair has fought back to its 50-DMA today but has yet to make any sustainable progress above said level at 1.5640/45. With new monthly lows set last week at 1.5390/95, we suspect the trend is lower in the near-term. However, the daily close yesterday above 1.5580 suggests that we could see further upside in the GBPUSD. 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 1.0280/85 and 1.0325/30. A 4-hour close above 1.0325/30 suggests further upside towards 1.0385. Support now comes in at 1.0135/55, 1.0095/1.0105, 1.0080 (former intraday swing highs), and 1.0005/10 (50-DMA).

--- Written by Christopher Vecchio, Currency Analyst

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