Euro plummets on surprise ECB rate cut, asset purchase programme. US Jobs/NFP today.

The ECB surprised the market with the aggressive nature of its move in cutting rates and commencing a programme of purchasing asset backed securities. The BOE left rates unchanged but Cable also took a hit, with the Scottish referendum adding to the pressure. Commodity currencies performed well, particularly on the crosses. Today’s focus will be on the US Jobs/NFP data, and until then it will be very quiet while the market digests today’s move.

EUR/USD: 1.2945

The Euro fell like a stone after the ECB surprised the market by cutting interest rates by another 10 bps, to a new record low of 0.05%, while also lowering the deposit rate further into negative territory, to -0.20%. Mario Draghi then announced at the press conference that the ECB will start buying a broad portfolio of asset backed securities and covered bonds in October, greatly increasing the size of the balance sheet.

Elsewhere, the US ISM Non Manufacturing figure was strong, and dollar supportive, but in the scheme of things went almost unnoticed, as did the US ADP jobs number which underwhelmed at 204k (exp +210K), while the initial jobless claims rose slightly to 302k (exp of 298k), and the market will now turn its focus to the US Jobs and Non Farm later in the session (exp 6.1%, +225K).

If the NFP is a strong number, as some economists are suggesting, then we are going to see the dollar resume its broad bull trend and will again put the Euro under heavy pressure.

Technically, the Euro is now heavily oversold in the short term and, personally, I have lightened up my own short position in order to resell in to any strength that we may see as they unwind.

Having broken below 1.3000 after Draghi’s statement, we are now in territory last seen 12 months ago. While the shorter term charts could provoke a bit of a short squeeze, especially if the NFP fails to live up to expectations, the longer term trend now looks set to head towards the major rising trend support  at around 1.2780 (monthly chart, from July 2001 – see below), which comes just ahead of the 9 July 2013 low at 1.2754. Ahead of that we should see some decent support at around the day’s lows, where the major Fibo extension sits at the 161.8% projection of 1.3993 to 1.3502, from 1.3700 at 1.2906.

On the topside, any rally back towards 1.3000 now appears to be a sell. If the NFP is poor though, we could see a larger run to the topside given the heavily weighted – short Euro – nature of the market. Above 1.3000, there is not a whole lot to stop it heading back to the daily Tenkan at 1.3070 and then on to 1.3100. I would be very surprised to see it up here, and it would really only be by dint of heavy short covering if we were to, in which case it would be another sell opportunity, for the lower levels to come in the days/weeks ahead.

Economic data highlights will include:

German Industrial Production, EUGDP, US Unemployment/ NFP, Consumer Credit

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EurUsd: 4 Hour

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EurUsd: Monthly

USD/JPY: 105.20

Having again dipped towards support at 104.75, the dollar  then turned higher, in making a new trend high at 105.35 after the ECB announcement. That was as good as it got, with large selling of Eur/Jpy being supportive of the Yen, and keeping the dollar pinned close to 105.00 in choppy trade. The dollar is making some minor gains back towards 105.25 heading into the NY close.

There is no real change to the technical picture and the market will now settle down until the US Jobs data (exp 6.1%/+225K).

A strong number would see the important 105.43 (2 Jan high & 61.8% of 124.13/75.56) taken out, beyond which will see the move that we have been waiting for, towards 106.00 and then to the 200 month MA at 106.45.  Beyond there, the next real resistance is not seen until the August 2008 high at 110.65 and then at the 76.4% Fibo level at 112.50.

On the downside, back below 105.00 would quickly test the 104.70 support should the NFP come in at below 200K – Unlikely I think. If wrong, a break of 104.70 could see a quick run back to 104.40, below which would see 104.25 and possibly 104.00 although I don’t really see it down here today.

Wait for then numbers and go with the flow, but the preference of playing it from the long dollar side remains the theme.

Economic data highlights will include:

BOJ Monthly Economic Survey, Leading Economic Index

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USD/JPY:4 Hour

GBP/USD: 1.6335

M&A bids at 1.6440 in Cable were quickly taken out after the BOE left rates unchanged today, with further losses driven by the selloff in the Euro following the ECB announcement.

Despite the diverging interest rate outlooks between the BOE and ECB, Sterling has plenty of problems of its own, with the upcoming Sept 18 Scottish referendum vote now looking to be a very close call and also placing downside pressure on the Pound.

Technically, Cable has fallen well below the base of the medium term channel, having seen a low today of 1.6332. There has been no discernible bounce and although the short term charts are heavily oversold, the medium term trend points lower, with 1.6300 being the immediate target ahead of  1.6285 (38.2% of 1.4813/1.7191). A break of this would suggest a run towards the 5 Feb low at 1.6251 and then the 17 Dec 2013 low at 1.6215. Eventually, I suspect we are in for a run to 1.6000, (50% pivot of 1.4813/1.7191) but could take a while.

Given the short term oversold nature of the charts, I would be doubtful of seeing it down towards 1.6200 today unless the NFP is very strong. Nearer home, if the NFP fails to impress, then we could see a bounce back towards 1.6400 and then to the previous support-now –resistance at around 1.6440. I also don’t think we see it up here, but if wrong, it would probably be another sell opportunity within the longer term downtrend.

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GBP/USD: Daily

USD/CHF: 0.9320

US$Chf exceeded my most hopeful expectations, by taking out both the 0.9250 and then 0.9300 resistances, in reaching 0.9328, and now looks headed towards what I had originally thought would be a medium term target, at the 61.8% Fibo level of  0.9838/0.8698 at 0.9400.

Direction depends on the NFP reading, but if the dollar can take out the 0.9400 resistance, the next target would be the 6 Sept 2013 high at 0.9455.

The short term charts, now being overbought, may slow the upside momentum, and if we do see a dip, we could return towards 0.9270 and possibly to 0.9200/15, which if seen would I think be a buy opportunity.

Economic data highlights will include:

CPI, Industrial Production

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USD/CHF:4 Hour

AUD/USD: 0.9345

The Aud spiked up to a high of 0.9392 today after the ECB announcement, before falling sharply back to where it had started, currently sitting at around 0.9345. Most of the action was driven through the crosses, where both EurAud and GbpAud fell by roughly 200 points and underpinned good demand for the Aud.

More choppy trade looks to be in store, and right now there are better things to look at than the Aud/Usd.

Direction today will come from the NFP. A strong reading will see the Aud back under pressure as the US$ finds the legs to head higher against all comers, although any downside for the Aud may be slow, given the yield demand that will see the it underpinned into dips. Initial nearby support is at 0.9330 and then at 0.9300, which could again hold it on the day – depending on the data, below which would find further strong buying interest at 0.9285 and then at 0.9260.

As we have said before, until we see a weekly close below 0.9260, it is hard to become too bearish on the Aud, with plenty of offshore/sovereign interest to buy the dips, in order to take advantage of the comparative yield. Although rather doubtful today, a very strong NFP could be the catalyst for this, so if/when we do fall below 0.9250/60, we would then most likely see an acceleration towards 0.9200, increasing the longer term term bearish view, a break of which would then target the 200 DMA/38.2% Fibo support of the rally from 0.8660/0.9505 at 0.9175. A break of this could see a deeper move towards minor support at around 0.9135 and then to 0.9100 and maybe to 0.9050 (50% pivot of 0.8660/0.9505.

On the topside, the double top at 0.9373 and the 0.9380 (61.8% of 0.9472/0.9236 resistances have now both been taken out by the spike to 0.9393 but they could well provide a cap again today. A weak NFP would allow the Aud to head back towards the session high and then to 0.9400 and possibly to 0.9416 (76.4%). Beyond that could see a return to the spike top at 0.9455 (10 July), albeit not today.

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AUD/USD:4 Hour

NZD/USD: 0.8305

The Kiwi spiked up to 0.8352 after the ECB announcement, driven by the collapse in EurNzd and GbpNzd, although it has since returned to where it started and currently sits just above 0.8300.

The NFP is the upcoming focus, and should the results be in line with, or above estimates, then the Kiwi will resume its decline, below 0.8300, targeting  0.8275(50% Fib of 0.7670-0.8839) and then the base of the wedge, which now ties in with the 20 Feb low at 0.8242. A break of this sees 0.8200 and then the 61.8% Fibo support at 0.8145.

If the NFP is below par, expect another spike to 0.8350, above which could see a run towards strong resistance at 0.8400. A break of the 28 August high at 0.8407 would see stops triggered and would be likely to take the Kiwi a bit higher although I cannot see this happening today. If wrong, look for a squeeze up to 0.8430 (23.6% of 0.8514/0.8310), beyond which would target 0.8445 (daily Kijun) and the 200 DMA at 0.8465.

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NZD/USD:4 Hour