Forex News and Events:
The fx markets started the event-full week through a quiet session in Asia and range-bound trading in Europe. Ahead of us, FOMC, ECB and BoE meetings, and US labor market data will shape the G10 trading starting from Wednesday. Until then, position adjustment and range-trading should drive the markets. In Japan, talks on raising sales tax in two steps pulled USDJPY to 97.64, yet bids above the daily cloud top (97.50) limited the downside so far.
Due in the afternoon, the pending home sales in US and Dallas Fed manufacturing activity index should trigger some volatility, yet expect consolidation and limited price action before the event-full half of the week.
Euro and Sterling Consolidate on the Topside
The solid bull market in euro started showing signs of weakness via top behavior in EURUSD prices. Over the past three trading days, the upside has been clearly capped by offers pre-1.3300, yet stops are building above ahead of the FOMC meeting and dovish Fed expectations. Bids trail up from 1.3250, the uptrend channel bottom and Friday low, while the positive momentum suggests an extension of strength to 1.3400/20 area.
In UK, GBPUSD consolidates gains at about 1.5400, with weakened sentiment this Monday. Bids are seen at 1.5380 (daily cloud bottom), while 1.5413 (Fibonacci 38.2% on January-July drop) should act as minor resistance through the event-less day. Released in the morning, June data showed M4 money supply advanced 1.5% year-on-year versus -0.1% previously.
Limited Enthusiasm on Aussie
AUDUSD tested 0.9300/20 area a couple of times during July, with failure to extend gains to further highs. The broad based USD weakness certainly helped the Aussie to pare last week’s losses but the sentiment seems on the downside since the week started. In fact, the softer inflation in June and the policy divergence between RBA and RBNZ is AUD-negative, alongside with growing expectations for a further RBA rate cut out of the next RBA meeting scheduled on August 6th. While the markets expect a rate cut with 77% chances, the bullish momentum on AUDUSD should start weakening. With trend and momentum indicators solidly positive, the downside is expected to remain capped, with light bids at 0.9200/0.9180 area (psychological support, 21-dayMA).
Events this week
Ahead of us, an event-full week should give fresh direction to fx trading. On Wednesday, FOMC will give policy verdict, while on Friday the July nonfarm payrolls and unemployment rate will be in focus. We do not expect any significant change in the FOMC policy statement; the data will be key in Fed decision to taper the USD 85bn worth monthly bond purchases and Bernanke has already made clear that purchases may be decreased or increased depending on economic data in his semi-annual testimony two weeks ago. It is also worth reminding that there are some speculations on the possibility of lower unemployment rate target since WSJ reporter Hilsenrath wrote in his July 25th article that “the Fed officials are likely to discuss whether to refine or revise "forward guidance," … and that the Fed might lower that 6.5% threshold for unemployment, which was set in September”.
On Thursday, markets will focus on BoE and ECB policy decisions and ECB President Mario Draghi’s speech after the policy announcement. BoE is expected to keep the policy rate unchanged at 0.50% and the asset purchases target at GBP 375bn. During his first MPC meeting in July, the new BoE Governor Carney had convinced the MPC voters to keep the asset purchases target unchanged, with forward guidance on policy rate. It will be interesting to find out the voting results on meeting minutes to be released on August 14th.
Regarding the ECB, the interest rates are expected to remain unchanged at 0.50% and the deposit facility rate at 0.0%. During his last speech, ECB President Draghi hinted of a further rate cut depending on economic data, yet we do not expect such policy action before September. Draghi’s speech however will be anticipated with great enthusiasm in the market place.
Today's Key Issues (time in GMT):
2013-07-29T14:00:00 USD Jun Pending Home Sales m/m, exp. -1.0%, last 6.7%
2013-07-29T14:00:00 USD Jun Pending Home Sales y/y, exp. 11.5%, last 12.5%
2013-07-29T14:00:00 USD Jul Dallas Fed Manf. Activity, exp. 7.3 last 6.5
The Risk Today:
EURUSD Quiet start as key events are pressed into the end of the week and traders are in wait-and-see mode. After a very aggressive bullish run EURUSD current bullish pause should have been anticipated. Despite the current fading of strength, trend and momentum indicators are solidly bullish suggesting an extension of strength to 1.3400/20 before real supply is noticed. However, small Doji pattern could indicate a longer than expected sideways price action. The first level of resistance is located at 1.3300 (25th July high & Jan 2nd high & psychological resistance), 1.3400/20 (range high), 1.3455 (14th Feb high). The next support is located at 1.3054/65 (21d & 65d MA), 1.2995 (10th July reaction high), 1.2963 (11th July low), 1.2877 (Fibonacci 50% retracement on Jul 12’ – Feb 13’ rally), 1.2820 (20th May low) 1.2797 (17th May low), 1.2750 (11th Sep low), 1.2662 (13th Nov low), 1.2431 (22nd Aug low).
GBPUSD has shifted into a consolidation pattern and any sell-off to 1.5320 region (65d MA) could be seen as a buying opportunity. We remain bullish (MACD point towards a zero line cross & RSI heading higher) as the close above 1.5279 would trigger a more significant recovery to 1.5465. Watch for next resistance to come into play at 1.5465 (24th June high), 1.5600 (May resistance) ,1.5807 (11th Feb high), 1.5891 (21st Jan high), 1.6007 (18th Jan high). The support levels from here are 1.5072/3 (4th July close & Fibonacci 23.6% on July 08’ – Jan 09’ drop), 1.5009 (29th May low), 1.4981 (9th July high), 1.4858 (July 5th reaction low), 1.4814 (9th July low), 1.4800 (psychological level).
USDJPY eventually broke to the downside of its emerging symmetrical triangle and has now violated 98.31 support. Trading below 98.31, with trend and momentum indicators decidedly bearish suggests a deeper correction to 96.90. On the downside, supports are eyed at 97.01 (30th April low & psychological resistance), 96.90 (21st June low), 95.91 (6th June low), 93.57 (Fibonacci 61.8% on Sept 12’ – May 13’ rally), 92.56 (2nd Mar low & Fibo 38.2% retracement), 90.93 (25th Feb low). We place our first resistance at 99.40 (26th June high), 101.50/68 (8th July high & Fibo lvl), 102.53 (29th May high), 103.55 (16th Sep 08 & 30th Sep 08 low), then 105.00 (psychological resistance).
USDCHF Not much in the way of directional price action today. Last week USDCHF dropped below key support at 0.9309 as the USD was sold across the board. The aggressive sell-off to 0.9359 has put a bearish tone to trend and momentum indicators and downside still looks vulnerable. Traders should still be focused on our target of 0.9242 (especially as we trade below 0.9340). The first levels of support remains at 0.9309 (Fibo resistance), 0.9288 (12th June high), 0.9242 (21st June low), 0.9128 (13th June pivot high), then 0.9023 (31st Jan pivot low). The next levels of resistance are located at 0.9568 (fibo 61.8% on May-June drop), 0.9598 (11th July high), 0.9626 (31st May low & 3rd June low), 0.9672 (fibo76.4% level on May – June drop), 0.9763 (17th May high), 0.9842 (22nd May high), 0.9900 (psychological resistance).