Mid-Day Report: Euro Lifted Mildly by Improving Sentiments, Dollar Pares Gains

Dollar pares earlier gain as markets remains cautiously in range ahead of the key events later this week. Euro was lifted mildly in European session following release of generally better than expected business and consumer survey data. Sentiments across different components improved for the third consecutive months in Jun. Economic sentiments rose from 70.2 to 73.3. Industrial confidence was up from -33.2 to -31.9. Consumer confidence was up from -28.1 to -25.1. Services confidence also rose from -22.5 to -19.8. The overall sentiment index is also at highest level since November. Though, the data were not strong enough to suggest sustainable near term recovery in economic activity yet. Markets will likely remain cautious on Euro ahead of ECB meeting later this week.

The biggest mover today is found in AUD/NZD. NZD was boosted as New Zealand trade surplus jumped by largest level in history from 319M to 858M in May. The cross should be set to test last week's low of 1.2377 and will probably extend lower to 1.2021 key near term support before bottoming in near term. We'd expect NZD to somewhat outperform AUD for a while before completing the consolidation pattern of AUD/NZD from 1.2928.

Elsewhere, dollar remains bounded in choppy range trading against most major currencies. PBoC Governor Zhou said that there are no "sudden changes" in China's stable foreign exchange reserve policy. Zhou emphasized that the policy aims at "liquidity, safety and returns." The dollar was sold off last Friday after PBoC called for a "super-sovereign reserve currency" that's delinked from the economies of the issuers in the annual financial stability report. Traders pare some speculation that China will be speeding up diversifications of its $1.95T reserve soon after today's comment from Zhou. On the other hand, Head of the Arab Monetary Fund, Jassem al-Mannai, said that dollar is underway a heavy burden through accumulating huge debt in the current crisis and China and Russia are proposing a more international reserve currency other than the dollar. He said that these developments could affect the dollar "negatively" and cannot be ignored. He also mentioned that the Gulf region's central banks could adoption options other than a strict dollar peg, including basket, floating exchange rates, dollar options, managed float.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 1.0769; (P) 1.0857; (R1) 1.0920; More

Another fall in USD/CHF cannot be ruled out with 1.0930 minor resistance intact. But after all, the pull back from 1.1021 s expected to be contained above 1.0630 support and bring strong rally. We continue to favor the bullish case that USD/CHF has bottomed out at 1.0590 already and hence expect rise from there to resume sooner or later. Above 1.0930 minor resistance will flip intraday bias back to the upside. Further break of 1.1021 will target 1.1158/1740 key resistance zone.

In the bigger picture, fall from 1.1963 is treated the third leg of the consolidation that started at 1.2296, which corrects the whole rally from 0.9634. With daily MACD staying well above signal line, such decline is tentatively treated as completed and hence, stronger rise is in favor to 1.1158/1.1740 resistance zone. Nevertheless, we'd favor that such consolidation is developing into triangle pattern and hence, upside should be limited by 1.1158/1740 initially and bring one more fall before completing the consolidation. However, break of 1.1963 will serve as the first signal that whole rally from 0.9634 is resuming. On the other hand, note that a break of 1.0590 low will indicate that fall from 1.1963 is still in progress for 1.0366, or even further to 100% projection of 1.2296 to 1.0366 from 1.1963 at 1.0033 before completing the consolidation from 1.2296.

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