Markets on hold for Yellen testimony to Congress. US$ generally mildly firmer.

Aud waiting on the RBA Minutes. A dovish tone will have it testing rising trend support at 0.9375. JY testimony due later in the NY session.

Mario Draghi comments (accommodative policy to stay etc.) helped European equity markets higher today and this flowed through to the US indices – and risk sentiment generally – ahead of Janet Yellen’s testimony to Congress later in the coming session. Currency markets remain steady, although the US$ does have a mildly bid tone. The big movers were Gold & Silver, which both headed lower. It could be a busy session coming up; Aside from Yellen, Asia will kick things off with the RBA Minutes, ahead of the EU ZEW  Economic Sentiment Survey and the UK Inflation data. The US Retail Sales will also be released but by then everyone will be hanging on what JY has to say in the Q&A session.

EUR/USD: 1.3620

The Euro jumped a little higher on the back of a firmer start in the European equity markets and also because of some decent buying from real money managers reaching 1.3639, before the soft EU Industrial production data put a cap on it. (May IP -1.1% vs -1.2% exp m/m). That was as good as it got for the Euro and it drifted back towards 1.3610, assisted somewhat by comments from the IMF that the ECB should consider using QE in the current low inflation environment. These comments were backed up by Mario Draghi, testifying to the EU parliament, where he also noted that the high Euro remains a hurdle to any sustained economic recovery. Sounds like a hint of what is to come, to me, although the effect so far has been minimal.

Currently sitting at 1.3620, the markets are now all pretty much on hold for Janet Yellen’s testimony to Congress later today, where the Q&A session will test her on when rates may rise given the recent upturn in the US economic numbers.

Ahead of Yellen, the EU/German ZEW Economic Sentiment Survey and the US Retail Sales may provide some minor waves, but the focus will be on JY.

In the meantime, the technical points remain pretty much unchanged, so for those who need reminding:

On the topside, the offers in the 1.3640/50 area remain solid, where the minor Fibo resistance at 1.3652 (61.8% of 1.3700/1.3573) is capping it, but a break of which would see the Euro head on to 1.3670 (76.4%/ daily cloud base/200 DMA). Further out, it would find sellers at 1.3700, a break which would see a run up towards 1.3730(100 DMA), which should be solid resistance although a break of this level would head on towards 1.3803 (61.8%).

On the downside, the initial support remains at 1.3600 (daily Kijun) and at the the minor rising trend support, now at around 1.3595, below which would head towards more bids at 1.3575 (4 July low; 1.3573). Beyond there would head towards 1.3557 (76.4%) a break of which would head to the greater degree of Fibo support at 1.3518 (38.2% of 1.2754/1.3995) but which looks unlikely to be seen today. If wrong, a break would see good bids ahead of the post-ECB spike low at 1.3502. The base of the rising wedge now lies at around these levels as well, so if we see 1.3500, I think I would be squaring up short positions at the first attempt to break through it as it should be strong support. If wrong on this, a break of the wedge base would hint at a further move south towards 1.3415 (200 WMA), 1.3370 (50% pivot % of 1.2754/1.3995) and then to 1.3300 (100 WMA) and 1.3294 (7 Nov ’13 low).

The indicators are generally pretty flat and a neutral stance is required, but a more hawkish tone from Janet Yellen in the Q+A will see a run towards 1.3550 and possibly to 1.3500.  That remains to be seen.

Economic data highlights will include:

ZEW Survey, US Retail Sales, NY Empire Mfg Index, Yellen testifies to Congress

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EUR/USD: 4 Hour

USD/JPY: 101.55

The improving outlook on risk sentiment that has today seen a rise in equity markets and US Treasury yields flowed though to US$/Jpy, where safe haven demand was diminished, allowing the dollar to rise to 101.62. This comes ahead of Yellen’s Capital Hill testimony and BOJ meeting today, and potential revisions to the US and Japanese economic forecasts. No major policy changes are expected from the BOJ, though the market will watch for further political pressure on the BOJ to ease policy further later this year. If Janet Yellen hints at any rate rise in 2015, should the economic numbers continue to improve, then the dollar is likely to see another run back towards, and possibly beyond, 102.00.

In the meantime, having reached 101.60,  the 4 hour charts suggest that we could continue to squeeze a little higher, with the next hurdles being at  101.70 (200 HMA) and then 101.85 (200 DMA) , above which 102.00 will see sellers. We are unlikely to see the dollar above here before Wednesday (morning – Asian time), but if Yellen is more hawkish than expected, 102.15 (100 DMA) will provide some resistance, above which could see a run up to the recent high at 102.35.

On the downside, the 100 HMA at 101.45 will provide the first, minor support. Below here, 101.20 and then last week’s spike low at 101.06 will see bids but if Janet Yellen remains as cautious as she has previously been, then 101.00 may not be so far away. That being the case, below here would see a return to strong support at the 9 May low at 100.80, and if this were to give way, then look for a run towards 100.60 (50% pivot of 95.78/105.43), below which we could be in for a sharp run towards 100.00 and 99.47 (61.8%).

Economic data highlights will include:

BOJ IR Decision, MP Statement/ Press Conference

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USD/JPY: 4 Hour

GBP/USD: 1.7085

Cable broke down through 1.7100 ahead of today’s important CPI data, which in turn comes ahead of tomorrow’s unemployment numbers. Recent UK data misses have seen traders take profit on long Sterling position after the failure to break up through the recent highs at 1.7180, putting into doubt whether the BOE will raise rates this year as has been increasingly expected.

With the daily charts looking as though they are rolling over, suggesting that Sterling may have topped out for the time being, it looks as though we could see a retest of support at the previous 1.7060 peak (1.7062; 23.6% of 1.6692/1.7179). Under here there is some congestion, starting at around 1.7050, the base of which would see more bids at 1.7000. A break of 1.7000 seems unlikely today, but if wrong, would head towards 1.6975 (23.6% of 1.6692/1.7062). A break of this level would head back to the June 25 low at 1.6950, below which, would see 1.6921 (38.2%).

On the topside, we need to regain 1.7100, above which would head back into the congestion ahead of 1.7180, but which looks unlikely to be seen for a while. If wrong, a break would then make a more concerted attempt on the barrier protecting 1.7200. Above this, there is not a whole lot of resistance until 1.7331 (50% pivot of the long term move from 2.1160/1.3547). Beyond that, there is not a great deal to stop Cable heading to the August 2008 high, which is not to be seen until 1.7516. If we do break 1.7200, it could be rather volatile, so keep stops tight.

As elsewhere, direction will largely depend on Janet Yellen’s testimony but a soft CPI reading (exp 1.6% yy) will see Cable come under further pressure before she speaks.

Economic data highlights will include:

UK CPI, PPI, RPI, Mark Carney speech

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GBP/USD: 4 Hour

USD/CHF: 0.8920

There is nothing to add today on US$/Chf, where despite a brief test of 0.8900 (low 0.8898), the dollar is currently unchanged from the previous session.

Ahead of Janet Yellen, more sideways trade looks likely, but as before, below 0.8900 would see a potential test of 0.8885, with stronger support at the 100 DMA at 0.8870. While I don’t think we are likely to see it down here today, a break of 0.8870 would see the chance of a run back to last week’s low at 0.8855, below which, look for further support at 0.8830/40.

On the topside, the 200 HMA and 100 HMA have now crossed at around 0.8925, a break of which would suggest a run up to minor resistance at 0.8935.  Above this the descending channel and the 200 DMA are now converging at around 0.8947 and should be strong resistance, although a break would hint at a run back up towards the previously troublesome 0.8995/0.9005 area.

Look for 0.8930/0.8890 to cover it today and for the 100/200 DMA’s to contain it, at least until Yellen’s testimony to Congress.

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USD/CHF: 4 Hour

AUD/USD: 0.9393

The Aud made several attempts to break above 0.9400 today, which have so far failed, with traders reluctant to push it too far ahead of today’s RBA minutes, which follow on from Glen Stevens’s recent dovish comments and his reiteration that the Aud is too high, leaving the Aud pretty much unchanged at the end of the NY session, but still above the rising trend support, at 0.9375.

Given that the indicators are generally flat, a neutral stance is required, although it does seem that eventually the Aud may want to see what sort of stops lie below the rising trend support. If 0.9375 does give way, on the back of some dovish comments from the RBA, then look for a run down to 0.9360 ,  a break of which could see the Aud accelerate down towards support at 0.9320 (61.8% of 0.9220/0.9505/18 June low) and then possibly to 0.9300.

If Janet Yellen is more hawkish than is expected (unlikely) and ignites a bid tone under the US$, then we could see the Aud come under further pressure, and below 0.9300 would see a run towards 0.9275 (76.4%). As we said before, if the Aud breaks under 0.9250, then the downside could really accelerate, but at this stage is considered unlikely.

Should Yellen indicate that US rates will remain low for the foreseeable future (probable), then the Aud is likely to make a more concerted test above 0.9400, indicating another run up to 0.9425 and beyond, towards the recent  high at 0.9455 and to the 10 April high at 0.9460. Beyond this would then head on towards 0.9495(76.4% of 0.9757/0.8660) and last week’s top at 0.9505, a break of which, there would be little to stop the Aud heading towards the 6 June high at 0.9543. Above here, the long term objective from the major head/shoulder reversal is now at 0.9665.

Economic data highlights will include:

 New vehicle sales, RBA Minutes, China FDI/New Loans

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AUD/USD: 4 Hour

NZDUSD: 0.8803

The Kiwi is a little lower, but currently holds above 0.8800, with direction today likely to be dictated by offshore events, principally by the RBA minutes and then later, Janet Yellen’s testimony, which will come ahead of tomorrow’s local CPI reading (exp 1.8%yy). Any outcome below this may question the likelihood of a rate rise on 24 July, which had previously pretty much been written into the price, and may see the Kiwi come under further pressure.

If the CPI comes in above expectations tomorrow, we might expect  the Kiwi to give the 0.8843 level (July 2011 high) a real test, above which would head to the top of the rising wedge resistance at around 0.8860 and then to the top of the long term channel, now at around 0.0.8910, where, if long, I would be taking profit and possibly going short.

If the Kiwi heads back below 0.8800 on the back of a dovish RBA, and/or hawkish Yellen, then it could make for the recent low at 0.8781 where the rising trend support should initially hold it. A break though, would head down towards Fibo support at 0.8733 (23.6% of 0.8401/0.8835) and then to 0.8700. Below here would suggest 0.8670 (38.2%), but seems unlikely for a while.

Take a neutral stance for now, but note the growing bearish divergence on the 4 hour charts.

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NZD/USD: 4 Hour