USD sell-off slower pre-FOMC minutes

Forex News and Events:

The heavy sell-off in USD decelerates before the release of the FOMC minutes from March 18/19th meeting. The hawkish shift already priced in, we will be closely looking at the dispersion of hawks-doves across sixteen Fed Presidents who attended the meeting. EUR-bulls continue taking advantage of broad USD weakness, GBP-complex strengthens pre-BoE (Thu). In Japan, BoJ’s refrain from additional stimulus favors JPY strength while rumors of an upcoming significant BoJ action escalate.

GBP strengthens pre-BoE

The BoE is expected to keep the policy rate stable at the historical low of 0.50%, the asset purchases target unchanged at GBP 375bn. The UK released improvement in trade deficit in February: exports contracted by 1.6%, imports fell by 2.2%. The BoE is now counting on higher foreign investor appetite and improved exports to sustain UK’s economic recovery. IMF revised the UK growth forecast upwards yesterday, while highlighting weakness in business investment and exports. To this end, the BoE is constrained to remain on its forward guidance to avoid further appreciation in GBP.

GBP/USD hiked on better-than-expected factory output yesterday and consolidates gains above 1.6732 (at the time of writing). Trend and momentum indicators strengthen on the upside, the option bids trail above 1.6640/1.6700/1.6725 and 1.6800 for Thursday expiry. The expected status quo from BoE is likely to have little impact on GBP-bulls. The key upside level stands at 1.6823 (Feb 17th high).

EUR/GBP trades a step down. Trend and momentum indicators remain comfortably bearish suggesting extension of weakness towards 0.82042 (March 5th low).

EUR/USD test 21-dma

EUR/USD heavily tests the 21-dma (1.3808) on the upside, taking advantage of broad based USD sell-off. The pair opened the day with heavy EUR-unwind on disappointing German data, rebounded to 21-dma before easing back below 1.3800. We see daily support building at 1.3780 Fibonacci 61.8% level on Feb-Mar rally. Option bids trail above 1.3760 for today’s expiry, bets are mixed at 1.3800/25 area. We expect consolidation below 21-dma, stops are eyed above. The FOMC minutes (due at 18:00 GMT) is the key event risk today.

Market rumors on Kuroda’s secret plans

The Yen extends strength amid the last dovish hopes on additional stimulus faded with Kuroda’s upbeat speech yesterday. However, some economist say Kuroda is only preparing a second round of single yet significant expansion in coming months, rather than marginal policy interventions. The BoJ is expected to double ETF purchases to 2 trillion yen, the overall bond purchases may reach 10 trillion Yen according to a recent Bloomberg survey. The BoJ’s July meeting is the most favored timing for the policy action.

USD/JPY retreats to pre-FOMC (18-19th March) levels. The pair tests Jan-Apr uptrend floor (101.55) on the downside, MACD (12, 26) turned decidedly bearish. Option offers trail down from 102.00/15 to 100.75 (2014 low) for today’s expiry. The key short-term resistance stands at daily Ichimoku cloud top (103.10). As predicted, EUR/JPY stepped into its daily Ichimoku cloud cover (139.39 / 140.96). Option barriers are placed at 141.35/55/75, light stops are eyed above 21-dma (141.54).

Today's Key Issues (time in GMT):

2014-04-09T18:00:00 USD FOMC March 18-19th Minutes
2014-04-09T11:00:00 USD Apr 4th MBA Mortgage Applications, last -1.20%
2014-04-09T14:00:00 USD Feb Wholesale Inventories MoM, exp 0.50%, last 0.60%, rev 0.70%
2014-04-09T14:00:00 USD Feb Wholesale Trade Sales MoM, exp 1.00%, last -1.90%, rev -1.80%

The Risk Today:

EURUSD has improved, breaking out of its short-term declining channel. Monitor the resistance at 1.3820 (see also 50% retracement). Hourly supports now lie at 1.3734 (intraday low) and 1.3673. Another resistance can be found at 1.3876. In the longer term, EUR/USD is still in a succession of higher highs and higher lows. However, the recent marginal new highs (suggesting a potential long-term rising wedge) indicate an exhausted rise. As a result, we would favour selling short-term overextended rallies. A significant resistance now lies at 1.3876 (24/03/2014 high).

GBPUSD rose sharply higher yesterday, breaking the resistances at 1.6684 and 1.6718 (see also the declining trendline). Resistances can now be found at 1.6786 and 1.6823. The short-term bullish momentum is intact as long as the hourly support at 1.6684 (previous resistance) holds. Another support lies at 1.6556. In the longer term, prices continue to move in a rising channel. As a result, a bullish bias remains favoured as long as the support at 1.6460 holds. A major resistance stands at 1.7043 (05/08/2009 high).

USDJPY has broken the support at 102.68 (19/03/2014 high), leading to a sharp decline. Even though the support at 101.72 has been breached, prices are now close to a key support between 101.56 (see the rising trendline from 100.76 (04/02/2014 low)) and 100.76 (see also the 200 day moving average). A resistance now stands at 102.68 (previous support). A long-term bullish bias is favoured as long as the key support area given by the 200 day moving average (around 100.80) and 99.57 (see also the rising trendline from the 93.79 low (13/06/2013) holds. A major resistance stands at 110.66 (15/08/2008 high).

USDCHF has thus far failed to decisively break the key resistance at 0.8930. The weakening momentum has been confirmed by the break of the support implied by the rising trendline. Other hourly horizontal supports stand at 0.8814 and 0.8787. Hourly resistances can be found at 0.8887 (intraday high) and 0.8953. From a longer term perspective, the structure present since 0.9972 (24/07/2012) is seen as a large corrective phase. The recent technical improvements suggest weakening selling pressures and a potential base formation. A decisive break of the key resistance at 0.8930 would open the way for further medium-term strength.

Resistance and Support: