Weak China data ensures that risk aversion remains in focus. BOJ meeting today

Aud soft on weaker Chinese outlook. Kiwi steady ahead of RBNZ, Thursday.

Risk aversion kept the market on its toes today after the soft weekend Chinese trade data, although most currencies were confined to a relatively narrow range. Cable was the exception and fell sharply but may have limited downside potential ahead of today’s BOE Inflation report, which could be an early signal of an impending rate hike. Equity markets will watch the Shanghai Index after yesterdays sharp falls. Data today will include the BOJ meeting -no change expected – and from Australia, NAB Business Confidence/Conditions. Later from Europe/NY we get the German Current Account and US Wholesale Inventories.

EUR/USD: 1.3870

The soft weekend Chinese data ensured that markets were slightly more risk averse today although the Euro has more or less held its ground in very quiet trade, managing just a 35 point range through the entire session. Given the comparative lack of data coming up today we could be in for another session of much the same, with only the German Current Account and US Wholesale Inventories to provide direction. It could be a session of watching the equity markets after the steep falls in China yesterday, which coupled with the ongoing situation in Crimea, would seem to limit much of a turnaround in risk sentiment in the near term.

From a technical point of view there is little change, and for the time being 1.3900 continues to provide a cap. I suspect this will largely remain the case today given the elevated levels of the indicators on the 4 hour charts and if anything, we could see the Euro pull back to slightly lower levels as they unwind.

The first minor support would be at around 1.3850, ahead of the previous resistance, now support at 1.3830. Back below 1.3800 would hint at a false topside break and would suggest a run back down towards 1.3770, below which 1.3745 is 38.2% of 1.3475/1.3915. Beyond that, 1.3700 provided a solid base last week and it looks doubtful that we see this level again for a while, but if wrong then the recent low at 1.3643 should provide ample support.

On the topside, if we can take out 1.3900 and then Friday’s high at 1.3915, which I am doubtful of doing today, then we should head on towards 1.3950 (50% of 1.6037/1.1876 & Monthly cloud top). If/when we get above 1.4000, we could be in for quite an acceleration as there is not too much on the charts to stop it heading on to the next major Fibo resistance at 1.4240 (76.4% of 1.4940/1.2041) which was also the Oct 2011 high.

Further out, the dailies still point higher and thus I suspect that a dip to day towards 1.3775/1.3800, should we see one, may be a buying opportunity for an eventual return to the topside and an eventual retest of 1.3915, although as I said, I don’t see it above here today.

Economic data highlights will include:

German Current Account, US Wholesale Inventories

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EUR/USD: 4 hour

USD/JPY: 103.20

Having gapped lower to open the week at around 103.00 (102.63 in early NZ) the dollar recovered somewhat, filling in the gap to 103.25, before once again sagging as the Nikkei headed lower.

The rest of the session remained choppy, but rather directionless, confined  to a 103.00/40 range with the Yen generally in some demand on risk aversion grounds following the weak Chinese weekend data and the ongoing tensions in the Ukraine.

The charts suggest that we could be in for a bit more of the same again today and another test of 103.00 (50% pivot of 105.43/100.75) would not surprise. Below there would head towards the previous high at around 102.80 (38.2% of 101.20/103.76) and then to the 50% pivot of 101.20/103.76 /100 HMA at 102.50 (daily tenkan 102.48) beyond which would signal a return towards 102.00 with the daily Kijun (102.25) and the 100 DMA 102.10 to provide interim support, but looks doubtful for now.

If we can take out the days 103.40 high, we may get a squeeze on to 103.63 (61.8% Fibo target of 105.43/100.75), and possibly 103.75, although I am not sure that we see the dollar head much higher than this today. If wrong, we could get a run towards 104.00, above which there is not too much above this level to stop it heading towards 104.30 (76.4%).

We get the BOJ meeting/press conference today and we could see some action, although generally there is little expectation of any change in policy. Ahead of the 31 March Financial Year end in Japan the BOJ seem likely to sit on their hands, with the general expectation that it will be April, after the tax hike, before any further easing may be announced.

Assuming the BOJ do nothing, use 102.70/103.50 as a guide.

Economic data highlights will include:

BOJ I/R Decision, MP Statement

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USD/JPY: 4 hour

GBP/USD: 1.6640

Far from being sidelined, as we thought it might be yesterday, Cable is where the action took place today , commencing its slide in early Europe, apparently on purchases of Eur/Gbp, as stops were triggered on a break back above 0.8300 pushing the cross up to a high of 0.8349.

BOE board member, Bean, also assisted Cable head lower, in expressing his concerns that a further appreciation in Sterling would damage hopes for an export boost to the UK economic recovery.

We could be in for another active day today with the Inflation Report and the GDP estimate both due. The BoE testimony could well begin lining up the market for an impending rise in interest rates, so until that is out of the way, the downside maybe somewhat limited.

From a technical point of view though, Cable has broken the rising trend support, that has recently guided it higher, and headed to a low of 1.6621. It sits not too far above there going into the NY close and the 4 hour charts appear to be building for another leg down, potentially for a test of 1.6605(38.2% of 1.6251/1.6821). Below 1.6600 would head to the 24 Feb low of 1.6582 and then the 50% pivot of the whole rally, at 1.6535, although that seems over the horizon for now. The hourly charts are attempting to recover from having become rather oversold and in the short term I would be surprised to see Cable head below 1.6600.

A return to the topside would see a squeeze towards 1.6685 and then to the 1.6700 pivot (daily tenkan) where the 100/200 HMS’s both lie, above which could see a return towards the session high of 1.6740.

For the time being look for 1.6610/1.6700 to cover it.

Economic data highlights will include:

UK Retail Sales Monitor, Industrial/Manufacturing Production, NIESR GDP Estimate, Inflation Report

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GBP/USD: 4 hour

USD/CHF: 0.8780

There is nothing new to add to US$/Chf today, after trading a narrow 30 point range.

The dollar continues to sit just above the important 0.8755 level, a break of which would hint that there could be plenty more downside to come so stops on longs should be kept relatively tight I suspect.

There appears to be some support just below here at the minor channel base at 0.8735 and then again, below 0.8700, at 0.8650. Under that though, there is not much to stop it heading to the Oct 2011 low at 0.8565.

If 0.8750 can hold, then we may see a squeeze towards 0.8800 and possibly beyond, to Friday’s high at 0.8815. Above here would return to the recent 0.8850 pivot, but which currently looks out of reach. If wrong expect a run higher to towards the recent high at 0.8895. Above 0.8900 would head to 0.8920 (38.2% of 0.9156/0.8777).

For now, use 0.8750/0.8815 as a guide with downside stops place sub 0.8730.

Economic data highlights will include:

Industrial Production:

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USD/CHF: 4 Hour

:

AUD/USD: 0.9015

The Aud remains under some pressure, having gapped lower at the open following the soft weekend Chinese data and not helped by weaker copper and iron ore prices, which fell to an 18 month low(US$105 tonne), after the weekend data..

As far as the Aud is concerned, 0.9000 currently remains intact, although the technical’s do not look particularly positive and a test and break of 0.9000 could see a run down towards 0.8985 and possibly to  0.8970 but the next Fibo support is not seen until 0.8950 (38.2%), where the rising trend support should hold it.

If 0.9000 holds, then we could see a squeeze back towards 0.9040. Above here would potentially see a squeeze towards the 100 DMA at 0.9075, but currently looks unlikely in the short term. We do get the NBA Business Confidence/Conditions today though, so if they show an upturn, then we may see a bit of a short squeeze to higher ground, although it appears that in the near term at least, that rallies look to be a sell opportunity.

Further out, beyond 0.9075, then we might expect a run up towards 0.9100 and possibly to Friday’s top at 0.9133. Above this looks a little unlikely in the near term but the eventual target would be the 200 DMA at 0.9170, which in turn lies ahead of the 12 month descending trend resistance currently at 0.9195.

For today look for 0.8985/0.9050 to cover it, with focus turning towards the Australian Jobs data, due Thursday, but before then keep an eye on the Asian equities markets and for any possible activity in Aud/Jpy after the BOJ meeting.

Economic data highlights will include:

NAB Business Conditions/Confidence

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AUD/USD: 4 hour

NZD/USD: 0.8465

There is little to add on the Kiwi today as it sits unchanged from this time yesterday, having traded a choppy 0.8440/80 range.

Ahead of Thursday’s RBNZ meeting we could be in for more of the same, but with the market overwhelmingly set up for a rate hike from the RBNZ, the danger is that they do nothing, at which point the downside could get a bit ugly. With Aud/Nzd at 1.0650 there is a chance that they will not want to push the cross any lower, so there is a small chance of them leaving rates unchanged. If so, expect a sharp move back below 0.8400 probably to around 0.8340, although that is not going to happen today.

For now, the session low of 0.8440 may hold it up, below which 0.8410 (23.6% of 0.8050/0.8523) will provide decent support.

On the topside, back above 0.8480 would head on towards 0.8500. If this can be overcome, in the more medium term, we may head back to last week’s high at 0.8523 and possibly to the Oct high at 0.8543. Beyond there would head on towards the April 13 2013 high at 0.8585 and potentially to the 7 Apr 2013 high at 0.8675, but which is a long way off.

New Zealand to hold general election on September 20.

Economic data highlights will include:

Electronic Card Retail Sales:

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NZD/USD: 4 Hour