Euro volatile, but holding above the lows ahead of today's ECB meeting. A busy session coming up.

The Euro has had a choppy session ahead of today’s ECB meeting, with various leaks causing a squeeze higher and then a reverse, to finish the session not too far from where it started.  The Aud and the Kiwi both saw some decent damage done, on the back of a surprise easing from the BOC, sending $Cad sharply lower and taking both the Aud and Kiwi along with it. The ECB will be the only game in town today, so until then it is likely to be quiet. After that bedlam will reign, Go with the flow, but look to sell any decent short squeeze in the Euro.

EUR/USD: 1.1586

All sorts of rumours as to what the ECB may announce later today, with regards to the size of their QE programme (EUR 50 bio per month, starting in March according to Bloomberg, going through until end 2016) has seen a sharp, but brief, bout of short covering, taking the Euro to 1.1680 in a spike move higher, before an equally sharp fall back to where it was this time yesterday, currently at 1.1575.

Technically there is really not that much to add, despite today’s short squeeze. The rally took the Euro briefly above the trend resistance that we have previously mentioned, but it failed to reach the 200 HMA now at 1.1690. If we head back up here in the event that the ECB disappoints the market with the size of its easing programme, the next level to watch will be at the Fibo level at 1.1720 (23.6% of 1.2570/1.1460), a break of which would trigger stops and would potentially head towards 1.1880 (38.2% of 1.2570/1.1460). Beyond there, which may be a stretch, we could see a move beyond 1.1900 and on towards 1.2000, where there is still a gap that needs to be filled from last week’s lower Monday opening price. If so, there is no change in the view that it would be a good sell opportunity. There are multiple resistance levels around here as well (weekly tenkan, daily Kijun, both at 1.2015; 23.6% Fibo resistance of 1.3993/[email protected]), but if taken out, we could see a further squeeze towards 1.2200 (200 Month MA: 1.2232).

The downside remains unchanged, and below the day’s low at 1.1540 would head to 1.1500, below which, we would head back towards last week’s low at 1.1460. Beyond there, the next realistic support is at 1.1370 (Nov 2003 low) and then at the major Fibo support at 1.1227 (61.8% of 0.8225/1.6037), with precious little elsewhere to hold it up.

Its all very much the toss of a coin today, but whatever the outcome of the ECB announcement, the end-game for the Euro will be that it will head lower against the dollar, either immediately or in the longer term,. I am short a small amount of Euro’s with room to sell it into rallies towards 1.2000, with a SL placed above 1.2200.

Economic data highlights will include:

Spain Unemployment, ECB IR Decision/Press Conference, US Jobless Claims, US Markit Flash Mfg PMI, Kansas Fed Mfg Survey.

Meta Trader – AxiTrader   EUR/USD: 4 Hour

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USD/JPY: 117.92

Lack of any action from the BOJ yesterday has seen Yen strength returned to the fore, with the dollar peaking at 118.86 and heading down to a low of 117.17 before a rebound, to currently sit back just below 118.00.

More choppy trade around current levels looks to be in store today, although the Yen will not be the centre of attraction and any real volatility will come on the back of moves in EurJpy.

On the downside, the nearby 200 HMA (117.70) and the 100 HMA (117.50) will provide the initial support ahead of the 117.17 low and 117.00. Below there would suggest a run towards the rising trend support at around 116.50 and then to 116.00 and possibly to the Fibo support at 115.50 (38.2% of 105.18/121.84)

On the topside, 118.00 will be the immediate hurdle to overcome ahead of further gains towards 118.15 and possibly back to 118.80, where the daily cloud is providing a decent cap, although this seems unlikely today.  A break would take the dollar higher once again, beyond 119.00 and on to the recent highs at 119.30 and then at 119.95 (8 Jan).

Further out, if/when 120.00 can be overcome then look for further gains towards the minor triple top at around 120.75. At this stage I doubt we are heading towards 121.00, but if/when we do, further advances towards the trend high at 121.85, a break of which would see a run towards the 15 July 2007 high at 122.42. In the longer term, the target of 124.13 (17 June 2007 high) would appear on the horizon but will take time given the resistance levels sitting in between.

Economic data highlights will include:

T: BOJ Monthly Economic Survey.

Meta Trader – AxiTrader    USD/JPY: 4 Hour

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GBP/USD: 1.5124

Cable has been choppy but rather directionless after the BOE minutes revealed a 9-0 vote in leaving rates unchanged at 0.5% and the APP at £375 billion.

The major point of interest was that the 2 BOE hawks, McCafferty and Weale dropped their calls for a rate hike and the consensus moved from 7-2 to 9-0 to leave rates on hold. Further forecasts see inflation reaching 0.0% in March, with roughly an even chance that CPI could temporarily dip below zero.

For its part, Cable has chopped around within a 1.5075/1.5178 range and currently sits roughly in the middle, with much of the action today likely to come via the cross after the ECB decision.

Cable looks as though it is going to continue to gyrate above 1.5000 for now, and with the indicators currently giving little hint in the short term in either direction, I would not be too involved at these levels, although the points to watch remain the same as yesterday.

On the topside, above 1.5175, and then 1.5200, will see further upside progress towards the major rising trend-support-now-turned-resistance at 1.5255. This should prove strong resistance, but above here would suggest a false downside break, and that being the case, Cable could head back towards the channel top at around 1.5475.

On the downside, back below 1.5100, there will be bids at the session low at 1.5075, and then again at yesterday’s session lows at 1.5056. Below here, then look for a run back towards the trend 1.5033 lows and a test of the important 1.5000 level, below which would see stops push Cable towards 1.4915 (61.8% of 1.3502/1.7191) and the July 2013 low at 1.4813. In the short term this appears unlikely, but given the overall longer term view with regards to the dollar up trend I think we are eventually heading in this direction and selling Cable into strength still appears to be the plan. Having said that, there is more mileage to be made out of selling the Euro than selling Cable, I suspect.

Meta Trader – AxiTrader    GBP/USD: 4 Hour

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USD/CHF: 0.8614

No change. Avoid. It will get pretty hectic after the ECB announcement, and for liquidity reasons it would be better to trade the Euro than the Chf.

As before, for those wanting to be involved, the wide range of 0.8400/0.8900 currently looks to have it covered, albeit that liquidity is still thin and I think it probably sensible to give it a wide berth.

In the bigger picture, while I still like the US$, buying dips towards 0.8300/0.8200, should we see it would seem to be a plan. If/when the Euro (EurUsd) heads lower, towards 1.10, and possibly to parity, then even US$Chf may find the legs to head back towards 0.9000/0.9500. Keep positions very small, or avoid it altogether.

Meta Trader – AxiTrader     USD/CHF: 4 Hour

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AUD/USD: 0.8091

Having spent another session gyrating either side of 0.8200, reaching a session high of 0.8233, the Aud dived in the US session in sympathy with $Cad after the surprise BoC rate cut. Traders are now eyeing the chance that the RBA will be under increased pressure to cut on Feb 3, a move which is already being called for by a couple of the big local banks.

Having been to a low of 0.8077, the Aud is currently hovering just below 0.8100 but has broken several important support levels and does look as though it could ratchet lower. It may be a sideways session given that all the attention is going to lie elsewhere, but the shorter term indicators do point lower, and if 0.8075 were to give way, then we are looking for a run towards the previous lows at 0.8067 (14 Jan) and then to the recent trend low of 0.8032 (7 Jan). Below here, albeit possibly not today, the downside momentum would look to carry the Aud below 0.8000 and on towards the important Fibo level at 0.7944 (61.8% of 0.6006/1.1080), below which we then are headed to the July 2009 low at 0.7700 and beyond,  possibly to the RBA’s stated target at 0.7500, albeit not for a while.

The topside will now find sellers at 0.8100, and above here at 0.8130, 8.8150 and at the 200 HMA now at 0.8175. Beyond here, 0.8200 currently looks out of reach, unless we see a decent sell-off in the US$, but were that to be the case, then further sellers would arriver at 0.8230 and at Friday’s high of 0.8255, ahead of the recent minor highs at 0.8273 and 0.8298, with the next Fibo resistance not seen until 0.8321 (38.2% of 0.8795/0.8033). Beyond this, the breakout level from below the base of the long term channel is seen at 0.8350 and should be strong resistance – and a decent sell opportunity – if seen.

For now, with the 4 hourlies looking negative and selling any rally today toward s0.8120/30 looks to be the plan as the Aud heads for a more sustained test of 0.8000. Caution will be warranted around the ECB announcement, but any decent short squeeze would only offer an improved sell opportunity in my opinion.

Economic data highlights will include:

Consumer Inflation Expectation, New Home Sales, China CB Leading Index.

Meta Trader – AxiTrader     AUD/USD: 4 Hour

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NZD/USD: 0.7564

The Kiwi, having squeezed up to 0.7710, took a swan dive after the BOC surprised the markets and cut rates, reaching a low of 0.7555, with precious little bounce seen into the US session close. The RBNZ meets January 29, with only the NZ Dec trade data due between now and then, and it would seem that the pressure is going to remain to the downside.

Technically, despite now being at a 2 ½ year low, the Kiwi is sitting above some important support, this being the 100 Month MA and also the descending trend support (daily chart, below). A break to the downside though will find little to hold it until 0.7435 (61.8% of 0.6560/0.8842), but with interim bids likely to be at 0.7500.

The topside will see sellers at the 12 Dec low at 0.7608 and again at the 5 Jan low at 0.7618, above which would take us back into the previous 0.7620/0.7700 consolidation area. Right now this looks unlikely and selling into strength towards 0.7600, with a SL at around 0.7630 seem to be the plan.

Meta Trader – AxiTrader     NZD/USD: 4 Hour

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