It was a choppy, but for the most part, uninspiring session as the market turns its focus towards the FOMC, due on Wednesday (early Thursday-Asia). The OECD lowered the 2014/15 global growth outlook, highlighting the issues in the EU, but the dollar was unable to take advantage after the softer than expected US data release, where both I./P and C/U missed expectations. The EU/German/ZEW, UK CPI, and then later the US PPI will be the main focus today. Australia gets the RBA Minutes, but the market will mostly sit on its hands, I suspect, until Wednesday afternoon.
EUR/USD: 1.2940
The Euro remained within a range today, above 1.2900, but with the upside capped once Europe walked in and the OECD lowered their 2014/15 global growth forecast, warning that the EU is once again the biggest issue and urged aggressive action from ECB, by launching GE.
The dollar was unable to take too much advantage (US GDP Outlook was also lowered from 2.6% to 2.1%) after the US data where both the Industrial Production and Capacity Utilisation missed expectations.
Things now look to be largely on hold until tomorrows FOMC tomorrow, where the market has set itself up for a more hawkish tone from the Fed. The danger is that they remain cautious than the market is expecting, which could see quite a nasty reaction in the dollar although the Euro is going to find the upside difficult, with plenty of interested sellers into any rallies, and with the ECB looking likely to act at any time to add further liquidity with a QE programme of their own.
On the topside, the reverse head/shoulder that we spoke about yesterday appears to have evaporated, and the Euro has remained capped all day by the 200 HMA, now at 1.2955. A break above there would head back to Friday’s 1.2978 top, above which, would see a run towards 1.3000, and potentially to the Fibo resistance at 1.3055 (23.6% of 1.3700/1.2858). If the Fed fails to live up to expectations, the Euro could build a head of steam and head back to the level from where it broke lower at 1.3100/05 and then to the next Fibo level(38.2%)/descending trend resistance (pink line) at 1.3175.
The downside remains in much the same situation. A break back below 1.2900 would be needed to head back towards the trend low at 1.2858 below which there is not a lot to stop it heading to 1.2800 and then to the target area of 1.2780 (major rising trend support; from July 2001), which comes just ahead of the 9 July 2013 low at 1.2754.
For today, the ZEW will provide the main interest but the market will be largely sitting on its hands, so another day of choppy trade above 1.2900 seems the most likely outcome.
Economic data highlights will include:
EU Q2 Labor Costs, German/EU ZEW Survey Economic Sentiment, US PPI.
Meta Trader – AxiTraderEUR/USD: 4 Hour
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USD/JPY: 107.18
There is nothing to add today to US$Jpy as it waits on the FOMC, having traded the session in a tight range above 107.00, but unable, so far, to overcome the resistance at 107.35.
If /when the resistance is taken out, further sellers will arrive at 107.50 but there is then not too much to stop it heading quickly to 108.01 (Sept 19, 2008),\. A break of ths would be important as there is again not much resistance to be seen until the descending trend resistance, joining the Feb 2002/June 2007 highs, at 109.20 (see monthly chart below), and then at the August 2008 high at 110.65. Abover there heads to the 76.4% Fibo level at 112.50 (124.13/75.56), albeit not for a while.
On the downside, bids will arrive at today’s low at 107.00 (Friday low: 106.96) and then below this at Thursdays spike low/100 HMA at 106.65. It does not look as though we are going to see it below here again, at least until the FOMC, but if wrong, further bids should eventuate at 106.50 and at 106.00, which if seen would be a good buy opportunity with a SL placed below 105.70.
While the weeklies point higher, the dailies are now heading towards overbought extremes and in the near term the 4 hours are turning a bit lower. Some caution is therefore warranted on the topside but will direction will be decided by the Fed and buying dips remains the preferred option. Kuroda will be speaking today and could place some pressure of his own on the Yen once again.
Economic data highlights will include:
BOJ Kuroda Speech.
Meta Trader – AxiTraderUSD/JPY:4 Hour
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GBP/USD: 1.6232
Cable sat within a 1.6220/75 range today, chopping sideways and seemingly happy to wait for the FOMC, and more importantly for the outcome of Thursday’s Scottish poll, which still seems to be hovering at 50/50, far too close for comfort. Ahead of that, the CPI is due today and then the BOE meeting minutes will be in focus tomorrow, which are forecast to keep rates steady, although the market will be looking to see how many members of the MPC are going to vote for a rate hike. If the Yes vote wins the day in Scotland it is hard to see any chance of a rate hike any time soon given the likely very negative flow-on effect to the UK economy.
More sideways trade looks likely today, although the CPI could provide some waves, but if Cable does overcome Friday’s high at 1.6277, then it may make a run towards 1.6300, above which it would look to close the opening gap of last Monday at 1.6320 (1.6318: 23.6% of 1.7191/1.6051). If Thursday’s vote decides to remain within the UK, then Cable could see quite a strong bounce and back above 1.6320 could see a decent squeeze up towards 1.6480 (38.2%).
In the short term, today’s session low at 1.6220 provides minor support ahead of 1.6200. Below there would see a return to 1.6150/70 congestion, but I don’t think we are likely to see it below 1.6200 ahead of the FOMC..
As we said before, if the Scotland vote goes the other way, then don’t stand in the way of Cable as it will collapse though 1.6000 and head quite a lot lower. I don’t think this is likely, but if it were to happen, then there is not a whole lot to hold it up and it could target 1.5725 (61.8% of 1.4813/1.7191) and then 1.5380 (76.4%). Below there, would see a return to 1.4813, the July 2013 and potentially even to 1.4230, the May 2010 low – Don’t get too excited yet, but if Scotland go for it, we could get there in a hurry.
Use 1.6200/50 today as a guide, but look out for any variance from expectation in the CPI ((exp 0.4%mm, 1.6%yy; Core: 1.8% yy) to provide some short term volatility.
Economic data highlights will include:
UK CPI, PPI, RPI.
Meta Trader – AxiTraderGBP/USD: 4 Hour
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USD/CHF: 0.9355
The dollar has chopped around today and ended up a little higher as it waits for the outcome of the FOMC. The Chf was a little weaker after the Swiss PPI missed expectations and underpinned the dollar. The outcome of Thursday’s meeting of the SNB will be the other main focus, with traders looking at the possibility of the SNB following the path of the ECB and potentially introducing negative deposit rates.
The range trade looks to be the most likely outcome again today, with the initial support seen at the session low at 0.9319.
Today saw a session low of 0.9319, below which we could be in for a test of 0.9300 although this currently looks unlikely. If wrong, below here would see a run towards 0.9285 and possibly 0.9270 (50% pivot of 0.9838/ 0.8698), which if seen would be where I would be looking to buy for the next leg higher.
On the topside, 0.9372 will provide the initial resistance ahead of 0.9385 and 0.9400 (61.8% Fibo level of 0.9838/0.8698). This will not give way easily – and probably not today -, but beyond 0.9400, the next target would be the 6 Sept 2013 high at 0.9455. Above here there is little to stop the dollar heading to 0.9570 (76.4% Fibo level of 0.9838/0.8698).
Al depends on the FOMC outcome, so until then sitting on hands looks to be the best play..
Meta Trader – AxiTraderUSD/CHF:4 Hour
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AUD/USD: 0.9030
The soft, weekend Chinese data kept the pressure on the Aud through Asia, eventually sending it below 0.9000 and down to 0.8982 where the bids at 0.8980 propped up until London got in. Things then began to improve for the Aud as decent selling of Eur/Aud underpinned Aud/Usd, allowing it to breathe a little more easily as it headed higher to fill in the Monday opening gap to 0.9040, by heading up toa session high of 0.9048 before once again turning a little lower.
Today’s RBA Minutes and Deputy Governor Kent’s speech will be in focus, and both are are likely to once again lament the strength of the Aud, but any impact should be limited until the FOMC on Thursday morning.
The strong resistance at 0.9050 (Weekly Cloud Base, Monthly Tenkan) remains the initial strong hurdle and I would be a bit surprised to see it head much above here today. If wrong look for further gains to 0.9080 (23.6% of 0.9505/0.8982) and then to stronger resistance at 0.9100 (100 HMA, 100 Month MA and the monthly Tenkan). I cannot really see the Aud back above here in the next session or two, but if wrong, look for a squeeze towards the descending trend resistance, currently at around 0.9115
The downside will see buyers again today at 0.9000 and then at the session low at 0.8982 although, I don’t see it happening unless the RBA minutes are overly dovish. Below this though would head towards 0.8975(61.8% of 0.8660/0.9505), below which would reach the head/shoulder target that we mentioned last week at 0.8965, where the Aud should find decent support. If wrong and the Aud keeps falling as the longs continue to scramble, then we could be in for a bit of a freefall towards 0.8923 (12 March low), 0.8890 (3 March low) and possibly to 0.8860 (76.4% of 0.8860/0.9505).
Use 0.9000/50 as a guide today, with the short term charts suggesting the possibility of another test of the topside.
Economic data highlights will include:
RBA Kent speech, RBA Minutes, China FDI.
Meta Trader – AxiTraderAUD/USD:4 Hour
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NZD/USD: 0.8175
Having made a new trend low at 0.8122, the Kiwi managed a minor recovery today on the back of some weakness in the dollar after the soft US data.
Further upside looks possible according the short term indicators, although today may be somewhat limited as the market turns its focus towards the FOMC, first thing Thursday morning (NZ time), to be followed immediately by the NZ Q2 GDP. It may be wise to cover some short positions in case the Fed are less hawkish than the market have decided they will be, and the GDP is above expectations, as the combination of these outcomes would provide a very nasty short squeeze.
The base of the weekly cloud – which gave way on Friday, now provides resistance at 0.8175, but which is currently under heavy pressure. If the Kiwi can find the legs, look for a further run towards 0.8200 and possibly on to the Fibo level at 0.8215 (23.6% of 0.8514/0.8140) and then to the 200 HMA, currently at 0.8245.
The downside will again see support at the Fibo level (61.8% Fibo 0.7670-0.8839) at 0.8145 and at the 200 WMA at 0.8135, although they were both briefly broken today and have given up some of their importance. They may well hold it for now, and I would be a bit doubtful of heading back today’s low at 0.8122, but if wrong, the Kiwi is likely to head quickly to 0.8100, below which there is very little to hold it until the 2014 low at 0.8051 on Feb 4, from where it bounced sharply. Below that would probably head quickly to 0.8000 and below, to Fibo support at 0.7985 (76.4% of 0.7670-0.8839).
Use 0.8140/90 as a guide with the chance of a minor squeeze higher.
Economic data highlights will include:
Fonterra Milk Auction.
Meta Trader – AxiTraderNZD/USD:4 Hour
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