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NZDUSD

Kiwi Benefits Feds Moderate Tone

After plunging 500 pips in a little under a month, the NZDUSD pair was due for a correction in the kiwis favor.  While the correction was undoubtedly catalyzed by the late-day FOMC rate announcement, some economic fodder was waiting in the wings to discourage the rally.  Released early in the morning in New Zealand, the money supply for the year ending May rose 10.9%.  The more disturbing read for the economy however was the NBNZ business sentiment gauge for June.  A net 32.2% of business leaders expected conditions to worsen as inflation and a cooling economy lead to unfavorable environment.  However, the rally could not be contained given the benefit for one of the last bastions of hope for the New Zealand currency foreign investment.  Benefits of the carry when long the kiwi has kept the NZDUSD from depreciating too quickly, and though the Fed in the US has added another 25 bp to its already attractive yeilds, the rise was already priced in.  Overall, the real surprise came from the moderation in tone from the FOMC which could keep the kiwi the star of the carry trade among the majors until the RBNZ is forced to ease its own rates.

Technically Speaking

The Kiwi flirted with its 2-year low before turning sharply higher on the day. It initially stalled at its lower Bollinger band on the hourly chart, but modest gains saw it rebound before the US interest rate news launched it higher on the day. The sharp rally was unable to breach the 6/26 intraday top, however, as the pair currently rests above its 5 day SMA. Any further moves downward would likely find moderate support at the previous resistance of 0.5970 and a strong barrier at .5909. On the upside, subsequent rallies will have to clear the three-times-tested weekly high of .6089 for confirmation.

AUDUSD

Commodities Back On The Page

Though without any fresh fundamental data for the data, there was no lack of aussie dollar positioning.  Like its New Zealand brethren, the rally in this pair came mostly at the end of the day with the passing of the FOMC decision releasing it from recent lows. The move higher was well on its way however running into the 18:15 GMT shake up. And providing the movement, commodities.  Industrial metals are the staple of Australian exports, and the correlation held with gold and copper prices in particular is not something to be ignored.  Gold prices, which had fallen 25% from its high in May to a mid-June spike low, finally broke through the $600 per ounce mark in electronic trading.  Copper, of which Australia is the number one producer, also marked a strong rally out of a recent channel.  Moving ahead, if the rebound in commodities can evolve into a change in trend; and if the economy can continue to print strong numbers, the AUDUSD could be put back on its pace higher as the dollar attraction continues to wear thin.  Traders will keep their focuses zeroed in on next weeks buffet of indicators on the economic docket.  Of note will be surveys on manufacturing, services, retail sales, inflation and of course an RBA meeting.  Though not expected to change their colors too soon, inflation in Australia could necessitate a rate hike as soon as the third quarter.  An ideal situation given the Fed has given signs that it may pause by then.

Technically Speaking

After yesterdays action saw the AUDUSD close below the 61.8 fibo of its 0.7010-0.7790 run for the first time, todays trading sent the Aussie soaring near the 0.7400 barrier. As the confluence of the 50.0 fibo of the 0.7010-0,7790 move, the 20-day SMA, a psychologically significant price level, and the upper channel of its 2-month downtrend, 0.7400 sits as heady resistance for the currency pair. As such, confirmation of the recent reversal would definitely need to clear this resistance to stand a chance at further gains. On the downside, the currency would likely find support at its 2-month low of 0.7270.

USDJPY

Back To The BoJ

After a week of the Fukui scandal and uncertainty over whether the yen would ever be able to make a dent its rate differential with the US dollar, it seems the Japanese currency can once again move back into the good graces of the FX market.  While the debate over whether the Governor Fukui should resign seems far from over and the Fed is still increasing the attractiveness of a long USDJPY carry trade, the speculation over when the BoJ can once again take center stage.  Economic data related to this fact was not very good last night however.  Factory activity in May reportedly contracted 1.0% from its record high, far more than expected as vehicle production was scaled back.  This was deemed by officials as temporary and a number of indicators stand between now and the July central bank meeting to rally inflationary hawks. Worker spending, manfucaturing activity and consumer inflation numbers are a few of the indicators that are on deck to put the rate speculation back on track. The market is still expecting the Fed to put the brakes on its aggressive rate policy soon and the BoJ to begin its own; and these forecasts should drive the currency until it actually happens.

Technically Speaking

The USDJPY dropped nearly 200 points on the day, taking out the 100 and 200-day moving averages in one fell swoop. Subsequent trading saw it come to a halt at the confluence of its lower 40-day channel line, 20-day SMA, and the psychologically significant 115 level. If it manages to break through this floor, it will also have to clear a previous congestion level at 114.50 for confirmation. Needless to say, a move below this significant support would be a clear bearish sign for the USDJPY. If dollar bulls manage to overpower their yen counterparts, however, look to see the pair test 2-month highs at 116.60.