Forex News and Events:
Bernanke’s speech at Jackson Hole came and went without any significant announcements on renewed Fed easing, and instead it seems all the hype and speculation will have to be deferred until the Fed’s September monetary policy meeting. Bernanke did announce that the September meeting would take place over two days (20-21 September) so that policy makers could fully assess the best implementation of their range of policy tools, but we still doubt that QE3 will be on the agenda. Risk appetite has seen a sharp rebound higher since his speech, helped in part by the downgrade in hurricane Irene to a tropical storm. European bourses have followed the lead of most Asian indices by rallying higher, with the DAX + 1.2% and SMI +1.7% at the time of writing (UK markets are closed for the public holiday). On the economic release front it has been a very quiet morning, save for some Swedish and German data points. Swedish retail sales for July dropped dramatically to -0.7% MoM, 1.1% YoY compared to prior estimates looking for +0.1%, 2.5% (and compared to the previous month’s reading of +3.1%, 3.4%). In response, EURSEK has rallied from its pre-release 9.0980 levels to 9.1150, but overall the move does not look likely to threaten the broader downtrend we have witnessed over the 3 weeks. Meanwhile, the first few regional CPI readings have been coming out of Germany, and most have revealed a contraction in price growth in August, leading us to believe that the composite figure due to be released sometime this evening will undershoot estimates (currently consensus is looking for 0.0% MoM). Nevertheless, EURUSD is rallying strongly today – a feat all the more remarkable considering the string of worrying Euro-negative headlines that hit the wires over the weekend from very high-profile speakers. IMF Chief Christine Lagarde noted that the crisis has entered a “dangerous new phase”, and pushed strongly for the mandatory recapitalisation of European banks – either through the EFSF or private sector. Adding to the gloomy picture, German Finance Minister Schaeuble asserted that the global economy may be headed for “seven lean years” as austerity measures gradually filter through. Although today’s price action suggests a bullish correction is underway for the EUR, we are not yet close to calling an end to the broader sell-off. The fundamental picture for the Eurozone has not changed, and huge challenges and risks litter the path ahead. As such, we feel that today’s recovery is only temporary and that further negative sentiment will creep back into the EURUSD market within the next few months. Our medium term ceiling on EURUSD is the hugely significant psychological barrier at 1.5000 (a level not seen since Dec 2009), so we would be extremely surprised to see the pair get anywhere close to there. The afternoon session today will offer a few data points out of the US; July’s PCE deflator, personal income & spending figures, pending home sales and Dallas Fed index are on tap, but expect the performance of equity markets to be the larger driver of risk sentiment from here.
Today's Key Issues (time in GMT):
12:30 USD Personal income, % m/m Jul; exp: 0.3, prev: 0.1
12:30 USD Personal spending, % m/m Jul; exp: 0.5, prev: 0.2
12:30 USD PCE price index, % y/y Jul; exp: 2.7, prev: 2.6
14:00 USD Pending home sales, % m/m (y/y) Jul; exp: -0.9(13.6), prev: 2.4 (17.3)
14:30 USD Dallas Fed manufacutring, index Aug; exp: -8.5, prev: -2.0
The Risk Today:
EurUsd EURUSD rallied sharply near the end of Friday’s European session, and that momentum has continued into the start of this week – allowing us to break above 1.4535 resistance and hit a new high of 1.4549. What is more, there’s now a bullish engulfing candlestick on the daily chart which suggests more gains may be coming today. The next resistance levels to watch above us are seen at 1.4577 (4 Jul high), 1.4653 (9 Jun high), 1.4680 (upper edge of 3-week uptrend channel), and 1.4696 (7 Jun high). Buyers on dips are likely to emerge around 1.4467 where today’s low is found, with further supports noted at 1.4330 (25 & 26 Aug low), 1.4260 (19 Aug low), 1.4151 (12 Aug low), and 1.4103 (11 Aug low).
GbpUsd Mirroring the move in EURUSD, GBPUSD has been climbing steadily higher at the start of this week, and at the time of writing has just broken above 1.6400 resistance. We are now on course to challenge the upper edge of the current downtrend channel which comes into play today at 1.6440-50. If we do manage to snap the downtrend, then it would open the path to re-visiting resistance at 1.6435 (former support now turned resistance), 1.6534 (24 Aug high), and 1.6618 (19 Aug high). In contrast, if the channel ceiling holds and repels the pair back lower, watch for key supports at 1.6324 (this week’s opening low), 1.6209 (26 Aug low), 1.6167 (12 Aug low), 1.6112 (11 Aug low), and 1.6108 (200-day moving average).
UsdJpy USDJPY’s collapse on Friday managed to find a solid floor at 76.50 – a level that has kept the pair from falling on the 23 & 24 Aug as well. For now, this looks to be mere coincidence rather than a symptom of Japanese official intervention, but we will keep monitoring how the pair reacts should we test 76.50 again. If we break lower, the only historical support we can expect below is 75.96 (the all-time low set on 19 Aug), before we would face a challenge of the major psychological barrier 75.00. The option barriers around 75.00 should encourage strong buying pressure, not to mention the attention of the BoJ, so we would avoid gambling on a trip below 75.00 just yet. In the meantime expect downtrend resistance at 77.50 to keep a lid on further rallies; subsequent resistance is seen at 77.86 (9 Aug high), 78.47 (8 Aug high), 79.42 (5 Aug high), 80.38 (12 Jul high), and 80.83 (11 Jul high).
UsdChf A sharp move higher from USDCHF on Friday took us to highs of 0.8160, carving a bullish engulfing candlestick on the daily chart, and ensuring we finally hit the target of our ongoing symmetrical triangle pattern (which became active down at 0.7900). With the presence of a bullish engulfing candlestick pattern today the bulls are expected to have the upper hand. Next resistance levels are seen at 0.8278 (19 Jul high), 0.8331 (13 Jul high) and 0.8398 (12 Jul high). Supports on the downside are noted at 0.8070 (today’s low), 0.7893 (26 Aug low), 0.7771 (16 Aug low), 0.7549 (12 Aug low), 0.7182 (10 Aug low), 0.7070 (all-time low) and the major psychological support at 0.7000.
Resistance and Support:
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot