Forex - Haven currencies benefit from strong return of risk aversion as green shoots wither.

Forex News and Events: The G8 summit starts this Wednesday in L’Aquila, Italy and will last for 2 days. There is much speculation that one of the main focuses will be the greenback and it’s global reserve status. China has led recent debates on the matter, stating that the instability of sovereign states shouldn’t be a risk for large holders of it’s currency – hence the proposition to create a global reserve currency using the IMF’s SDR (Special Drawing Rights) - a synthetic currency made up of a basket currencies. This is a long-term view driver for the dollar price action. For the time being the dollar is bullish on prevailing risk aversion – EURUSD declined0.5% this morning on reports the global recovery was not for this year and the Q2 gains are unsustainable. Q2 earnings kick off with Alcoa on Wednesday. We expect Q2 numbers to reflect the general view that the “green shoots” everyone was seeing during Q2 were merely a bear market rally and not based on sound economic factors. As unemployment hits a 26 year high and consumer confidence continues to wane it will be some time before we see considerable and sustainable recovery. Unemployment rose to 9.5% with 467K jobs cut last month – while this is lower than some months during the height of the crisis and the contraction is somewhat slower – the 6 million jobs lost throughout this recession leaves no room for optimism just yet. The dollar led moves recently have shown that while the greenback suffers from substantial structural problems its haven status remains intact. This reaffirms our view for a strong dollar in the near and medium term but for a weaker greenback as we leave this crisis in 12 to 24 months.

Today's Key Issues (time in GMT): 14:00 USD ISM Non-manufacturing Composite (Jun)

The Risk Today: EurUsd Dollar constructive as risk aversion sends the pair lower - breaking previous bullish channel. Continued moves lower have to test 1.3890 then 1.3830 before we can see a sustainable bearish move. GbpUsd GBP has broken out of it's recent 1.6180 - 1.6630 range as risk aversion sends the pair lower. A real bearish stance to be confirmed through 1.6080 but constructive bear is definately in place. Return above 1.6234 would reassert bulls. UsdJpy A break of trendline support at 95.25 is needed to hint at a more important downside potential and a test of the key 93.85/30 support zone. This said, recent return of risk aversion will definately benefit the Nippon currency - a break of 94.80 see's the pair head substantially lower. UsdChf USD/CHF is locked between trendlines at 1.0630 and 1.1020 but for which investors show low enthusiasm so far.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.4200 1.6329 96.80 1.1018 1.4150 1.6230 96.14 1.0960 1.3999 1.6154 95.50 1.0935 1.3912 1.6116 95.29 1.0921 1.3890 1.6080 95.03 1.0900 1.3828 1.5941 94.80 1.0856 1.3755 1.5809 93.86 1.0708 S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot