A volatile session with the chance of another one ahead. Australian Jobs, ECB/BOE coming up.

Aud, Kiwi higher, squeezing shorts, ahead of Australian Unemployment data.

Soft EU data weighed on the Euro early on, before the sell off in US$Jpy  precipitated a turnaround with it being the turn of the US$ to feel the heat, coming under pressure on all fronts. This allowed the Euro to regain its lost ground, closing NY near its highs as the market now turns its focus fully towards today’s ECB meeting and the important press conference featuring Mario Draghi. The BOE meeting will be the other highlight today, with the possibility of a split within the MPC as to when a UK rate rise should take place. Before then, Asia will concentrate on the Australian Employment numbers.

EUR/USD: 1.3382

Soft German factory orders (-3%; June) and a contraction in the Italian Q2 GDP, which pushed Italy back into recession, combined to push the Euro down to 1.3332 in early Europe before the dollar took on a weaker tone, led by a selloff in US$Jpy, and allowed the Euro to bounce to session highs in NY to 1.3386. With the speculative market sitting very short of the Euro, traders have their fingers crossed that Mario Draghi will take a dovish stance later in the coming session at the ECB Press Conference, hoping that he will help to push it back down. Given the soft nature of the recent run of EU data, this is probably the way that he will run with it, but should he strike a more neutral stance we could see a nasty short squeeze which could drive the Euro a fair bit higher.

Technically, the shorter term charts are now suggesting that this could be the case and a test of 1.3400 (100/200 HMA and descending trend resistance) would not really surprise, ahead of the ECB statement, as nervous short covering continues to drive the Euro a little higher. Beyond here would take the Euro back to around 1.3415/20 (200 WMA), a break of which could see a further spike towards Friday’s high at 1.3445 (daily Tenkan). I am not sure that the Euro is likely to head much beyond here unless we see a larger short squeeze on the back of a neutral Draghi statement, but if wrong we could see a run up to 1.3475 (38.2% of 1.3699/1.3332) and then to  1.3490/00 (descending trend resistance/23.6% of 1.3993/1.3332) beyond which the daily Kijun at 1.3530 will provide resistance.

On the downside, 1.3350 (100 WMA) and then the session low at 1.3332 will see good bids. Given the bullish divergence visible on the 4 hour charts, I am not really that confident that the Euro is going to head too much lower today, but if we do break down below 1.3330, the next level of support will arrive at 1.3294 (7 Nov ’13 low), a break of which would head towards 1.3228 (61.8% of 1.2754/1.3993) and then eventually to 1.3104 (6 Sept ’13 low).

While the longer term decline remains in place, I suspect some caution is necessary today. Should we see a squeeze higher though, I think that in the longer term it will probably prove to be an opportunity to sell into it, looking for the next leg lower. If Draghi remains very dovish though, the Euro is going to quickly run out of steam up here and will head directly to the downside.

Economic data highlights will include:

German Industrial Production, ECB Meeting, I/R Decision, US Jobless Claims, Consumer Credit

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EUR/USD: 4 Hour

USD/JPY: 102.05

Stop loss selling of US$Jpy, on the break of the 200 DMA at 102.20, saw the pair collapse to a low of 101.77, taking out various support levels in the process before bouncing to finish the session at 102.05.

The move has taken out a lot of Yen short positions, both against the dollar and on the crosses (Eur/Jpy finally reached our long term target of 136.20) and for the time being the market looks as though it will be nervous of taking on any new carry positions. With the Russian/Ukraine situation still being very tenuous it could be that the Yen will remain in demand and the charts are suggesting that we could see further yen strength ahead.

The 4 hour charts are pointing lower now and while I suspect that we are likely to hang about 102.00 today to allow the market to lick its wounds, a move back towards the 101.77 low is quite possible, where the Fibo support (38.2% of 95.80/105.43) should be strong. A break of this would suggest further declines towards Fibo support of a lesser degree at 101.68 and then at 101.35 which lies ahead of the July double bottom at 101.06 and the very strong support at 101.00

On the topside, 102.20 will now act as resistance (200 DMA) ahead of a run back towards 102.40/50. I would doubt that we are heading above here today, but if wrong we may see a run up to the recent high at 102.92. I think that is for another day and in the meantime, look for 101.75/102.20 to cover it today.

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USD/JPY: 4 Hour

GBP/USD: 1.6850

Cable has been left largely on the sidelines today and remains stuck in the middle of the 1.68/1.69 range that we discussed earlier in the week. A sharp fall from around 1.6860 to an early London low at 1.6821 was seen after the disappointing IM/MP data, but it has since spent its time in slowly recovering the lost ground and now awaits the outcome of today’s BOE meeting. The market is looking for some sort of news that a 2014 rate hike is possible and there is a possibility of seeing the first rate MPC vote split since Mark Carney took office 12 months ago.

Technically, there is currently little change while the current 1.68/1.69 range dominates. On the topside, the 100 DMA at 1.6867 is acting as a pivot, above which a hawkish BOE could see a run towards 1.6900 (23.6% of 1.7192/1.6815/200 HMA), a break of which would see a test of the descending trend resistance at around 1.6925. This should be strong, although a topside break would see an acceleration higher towards 1.6960 and possibly back to 1.7000. Given the negative look of the daily charts, I still suspect that any rally towards 1.6950/1.7000 is probably a sell opportunity.

On the downside the initial support now sits at the day’s lows at 1.6820 and again at 1.6810 (76.4% of 1.6692/1.7191). Below 1.6800 we would head back into the messy consolidation, the base of which is at roughly 1.6740, but a break of which could see a return to the 29 May 1.6692 low.

A more hawkish tone from the BOE looks to be the most likely result and buying dips seems to be the plan. Until then a neutral stance is required.

Economic data highlights will include:

BOE Meeting, I/R Decision:

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GBP/USD: 4 Hour

USD/CHF: 0.9075

US$Chf made a new trend high at 0.9114 before it turned sharply lower, with the Swissy, along with the Yen, back in strong safe haven demand on the back of the ongoing tensions in Russia/Ukraine, which saw the dollar fall to a low of 0.9070 ( rising trend support/200 HMA). The bearish divergence in the 4 hour charts makes me think that the dollar may have see a peak, at least in the short term and the momentum appears to point a little lower. The points to watch would be at 0.9053 (23.6% of 08855/0.9114), and below 0.9050, which would break below the daily cloud base would see a run back towards 0.9035, a break of which may be the hint of the start of a deeper correction. Under here would take the dollar back towards the previous sticky level in the 0.8990/0.9010 range which would need to hold in order to avoid a test of the rising trend support, currently at around 0.8950 and the 200 DMA at 0.8940.

If Mario Draghi is as dovish as the speculative market hopes, and drags the Euro lower, then US$Chf will quickly regain 0.9100/10, and beyond the session high would then head on towards 0.9130 (23.2% of 0.9838/0.8698), beyond which would see a run up towards the 100/200 WMA’s, which both currently lie at around 0.9160. This should be strong resistance but a break of which would suggest a run up towards 0.9190 (20 Nov ’13 high) and then to 0.9249 (7 Nov 13 high).

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USD/CHF: 4 Hour

AUD/USD: 0.9350

The Aud, having traded down to 0.9291 in Asia, remained close to 0.9300 for much of Europe, before slowly squeezing higher and then accelerating to take out stops above 0.9340, which in turn saw a vicious spike up to 0.9373, before settling in NY at around 0.9350.

The market is now awaiting the Unemployment data later this morning at which expectations are for the headline figure to remain flat at 6.0% with+ 13K jobs added over the month and with the participation rate projected to remain steady at 64.7%.

Today’s price action has taken out all the stops, placed over the last couple of days by those who had been banking on a head/shoulder formation, looking for a swift move down towards 0.9200, leaving this idea looking null and void.

The short term indicators actually now point higher and if 0.9373 does get taken out, then we could see a run back towards 0.9400 (0.9396: 61.8% of 0.9471/0.9275) which should once again prove tricky to overcome. Decent sellers have been lurking there before and I would be surprised to see it head much higher, although if wrong look for further advances towards 0.9425 (76.4%).

On the downside, a poor Jobs report would probably see a retest of 0.9300, below which, buyers will appear at yesterdays low at 0.9291 and again at Friday’s 0.9275 base. As we said before, below this would begin to test the important pivot line (red) that we have been watching for months, currently at 0.9260. If this breaks, then I think the Aud could be in for quite a serious move to the downside, and below 0.9260, the first target would be the 200 DMA/38.2% Fibo support of the rally from 0.8660/0.9505 at 0.9177, a break of which could see a much deeper move towards minor support at around 0.9135 and then to 0.9100. This is unlikely to occur for a while, and if 0.9260 holds it may not happen at all, but keep an eye on it.

While the short term indicators point higher, buying dips appears to be the plan for the day, but with the dailies looking relatively flat, it could be that we are in for some more choppy trade ahead in the days to come.

Economic data highlights will include:

Performance of Construction Index,  Unemployment

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AUD/USD: 4 Hour

NZDUSD: 0.8475

The Kiwi fell to 0.8423 in Asia and has since spent the day squeezing slowly higher in recovering to current levels, close to the session highs of 0.8486.

While the dailies still point lower, the bullish divergence on the 4 hour charts suggests that we could yet push back, beyond the day’s high, and on towards 0.8500 and possibly towards the descending trend resistance at around 0.8520. Above here would trigger stops and could see an acceleration towards 0.8580 although at this stage this looks some way off.

On the downside, the 200 DMA is at 0.8453 which may act as a magnate, but below which, the session low at 0.8423 currently looks reasonably well protected. While under the descending trend resistance the greater trend does remain lower and below 0.8420 would see a run towards the Fibo support at 0.8408 (38.2% of 0.7718/0.8835) and to the 4 June low at 0.8401. I don’t think we are heading down here yet, but if/when 0.8400 gives way, a deeper correction would most likely head quickly to 0.8275/0.8300.

Short term momentum appears set to take the Kiwi a bit higher, but selling into any strength for a continuation of the medium term downtrend looks to be the longer term plan.

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NZD/USD: 4 Hour