US$ firm despite soft data. RBA I/R decision today's main event.

The dollar remains firm today despite underwhelming US data, as the bond market continues to push yields higher in anticipation of a rate hike coming from the Fed, most likely in September, unless that theory is unwound by a soft US jobs report on Friday. Ahead of that and the other key focus, Thursday’s ECB meeting, today’s main action will be in the Aud$, after the RBA meeting, due in today’s Asian session. The market is leaning on a 25bp cut, but could be disappointed if the RBA are concerned about the real estate sector. Elsewhere, the main events today will be UK Construction PMI, German Retail Sales, EU PPI and the US ISM NY Index.

EUR/USD: 1.1193

The Euro is pretty much unchanged today after an earlier squeeze up to 1.1240, seen after better than expected EU inflation data. The CPI climbed back to -0.3% in February (vs expectation of -0.5%) while Core CPI was unchanged at 0.6% yy. The February EU manufacturing PMI was revised slightly lower to 51.0 while unemployment dropped to 11.2% in January. The US data was generally disappointing, with the personal income, personal spending, construction spending and ISM manufacturing all coming in  below expectations, although the market seems to be largely ignoring these facts as the US$ continued to rally.

The ECB meeting remains the main focus in the EU this week though and, further out, traders will have their eye on the details of the Eur 1 trillion government bond-buying program, which will begin on March 15. Today could be another fairly range bound affair, with only some minor data to provide any direction (German Retail Sales, EU PPI, ISM NY Index) ahead of the ECB Meeting and then on Friday, the NFP.

Technically the Euro remains largely unchanged, although the Euro did put in a marginal new low today at 1.1259. Further trade, close to 1.1200 would not really surprise today, and as we said over the last few sessions this level could continue to act as a magnate for a while, given that we are close to very important Fibo support (1.1209: 61.8% of 0.8225/1.6037). Eventually though I think we are going to head lower, at which point the Euro is likely to revisit the trend low, seen on Jan 26, at 1.1097. Below this there is little support to be seen until the Sept 2003 low at 1.0759 and while I think that this lies ahead, I would imagine that a fair bit of work needs doing before then.

On the topside, 1.1200/10 is again going to act as a pivot by the look of it, with bounces likely to run into sellers at minor Fibo resistance levels of the current decline, at 1.1210, 1.1240 and at 1.11295. I would be surprised to see it above here for a while, but if wrong, then further resistance would be seen within the previous 1.13/1.14 consolidation area (200 HMA: 1.13150/26 Feb high 1.1378/25 Feb high: 1.1386), above which would see the Fibo run into resistance at 1.1437 (23.6% of 1.2570/1.1097) and 1.1449, where we have a minor double top.

For today look for a largely rangebound session using 1.1150/1.1230 as a guide.

Economic data highlights will include:

German Retail Sales, EU PPI, ISM NY Index.

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USD/JPY: 120.09

The dollar finally headed higher today, taking out 120.00 despite the poor US data, making a high, so far, of 120.15. The dollar followed US Treasury yields higher, where the bond market seems to be increasingly pricing in a Fed rate hike later this year. If the US data continues to miss expectations (watch Friday’s jobs data for a guide), the bond market may have to rethink their timing of when the Fed will hike, but right now the dollar seems to like the idea as well.

The dollar is currently sitting just below the triangle top, which will act as resistance, but the 4 hour charts have some positive momentum behind them and a break to the topside would take the dollar on towards the 12 Feb high at 120.46. Beyond here, the dollar would then head onto and probably beyond 121.00. If/when we do see such a move, look for further advances towards the trend high at 121.85 (8 Dec), above 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.

On the downside, back below 120.00 would open the way for a return to the session low at 119.62 and then to 119.50. Below here would find bids at 119.20/119.10 (daily Tenkan: 119.20, 100/ 200 HMA’s 119.10/00) and then to 119.00. I doubt that we head below here today, but if wrong, further bids would arrive at last Thursday’s low at 118.62 low, where the daily Kijun will again prop the dollar up. Below that lies the  base of the rising channel and minor Fibo support at 118.40 (61.8% of 117.17/120.46), beneath which would head back to the recent 118.23 low and to the daily cloud top, now at 118.05. Below 118.00 would then head back into the previous 117/118 consolidation area and could even see the chance of a move towards the 116.40 area, although right now this looks over the horizon.

Look for a rangebound session, but with a continuation of the upside bias. Buying dips is the preferred strategy today at around 119.70, looking for an eventual run towards 121.00..

Meta Trader – AxiTrader    USD/JPY: 4 Hour

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GBP/USD: 1.5367

Cable had a tough session today despite the solid UK Mfg PMI (54.1 vs exp 53.4) and headed lower in choppy trade as stories did the rounds of some central bank buying of EurGbp, breaking down through support at 1.5400 before heading to a low of 1.5350, from where we have so far seen a minor bounce to 1.5370.

With the indicators now generally pointing lower, I think that selling into rallies back above 1.5400, with a SL above the top of the descending channel, now seen at 1.5490 or preferably above the 100 DMA at 1.5565. Above 1.5400, the immediate points to watch are at 1.5435 (200 HMA) and 1.5450 (100 HMA).

If Cable does head lower, then below 1.5350 the next point to watch is at the Fibo support at 1.5336 (38.2% of 1.4987/1.5551), which is backed up by the 23 Feb. low of 1.5331 and the 17 Feb low at 1.5315. Below 1.5300 would find further bids at 1.5285 (weekly Tenkan) but I think that this may be a few sessions away yet.

Economic data highlights will include:

Construction PMI.

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USD/CHF: 0.9589

US$Chf has broken higher today, in reaching 0.9597, after overcoming the 100 DMA at 0.9540 and looks as though it has the legs to head higher still in the sessions ahead.

The technicals are a bit tricky in the Swissy, given that the charts are not necessarily accurate following on from the large fall in January, but further gains towards 0.9700/50 do look possible, while the downside now looks supported in the 0.9450/0.9500 area.

Buying dips into the support is the favoured strategy looking for a run to the topside where parity will eventually be retested I suspect.

Economic data highlights will include:

GDP.

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AUD/USD: 0.7773

The Aud largely ignored the better than expected Chinese data yesterday and remains heavy ahead of today’s RBA Meeting/Statement and is currently sticking pretty much to the 200 Month MA at 0.7780.

The market seems to have convinced itself that the RBA will cut today, with the only argument against doing so being the probable effect on the already inflated housing sector.

If we do see a cut, then the Aud is likely to head swiftly below the session low of 0.7755 and the support at 0.7740, seen immediately after the release of the previous RBA Minutes. Below there, 0.7720/25 will be the next support ahead of 0.7700, a break of which would then head towards the channel support at 0.7680 and on to the 12 Feb low of 0.7643 and the trend low at 0.7625. Eventually I suspect we will reach the RBA’s stated target of 0.7500, and from a technical point of view we could head a lot lower, although that would be a long term move.

On the topside, if there is no cut, then we will see a spike to back above 0.7800 and on towards minor resistance at 0.7830 and possibly to 0.7850. Above this could take the Aud up to 0.7880 and possibly even towards 0.7900 but if seen I would be a seller, with a SL placed above last week’s 0.7912 high.

As we said yesterday, in the absence of any rate cut this month, I think any strength would prove temporary as it would merely delay the likelihood of the next cut, which could then come in April or May.

Economic data highlights will include:

Building Permits, Current Account, RBA IR Decision/Statement.

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NZD/USD: 0.7515

The Kiwi is lower today, dragged down by the softness in the Aud while waiting on the RBA decision but is still hanging on above 0.7500.

If the RBA do cut, then the nearby support will get taken out as the Kiwi heads towards the rising trend support at 0.7460 and then to the Fibo support at 0.7445 (38.2% of 0.7175/0.7610) beneath which, the next target will be the 13 Feb low at 0.7410 and then 0.7400.

Below 0.7400, which currently looks a little unlikely, for a while, would move back to minor Fibo supports 0.7375 and 0.7325 (50/61.8% of 0.7175/0.7573). I don’t really see it down here for some time, but if wrong, further bids would arrive at the 12 Feb session low at 0.7313 and then again at 0.7300.

Further out, below 0.7300 would see a run towards minor supports at 0.7250 and 0.7225, and then further out we could then be in for another test of 0.7200 and the trend low of 0.7185. Below this there is little support to be seen until the spike low at 0.7115 (17 Mar 2011) and even further out, I think we are eventually headed towards 0.6962 (38.2% of 0.3900/0.8842) and possibly to the 200 Month MA at 0.6538. Don’t get excited; this is still a long way off.

On the topside, no cut will see a spike back towards 0.7575 and we could even see another run towards 0.7600 and to last week 0.7613 high where the Fibo resistance at 0.7616 (61.8% of 0.7175/0.7890) should again prove a tough nut to crack.  If so, I would still prefer to sell into the strength.

.From a domestic point of view, the key focus will be in tomorrows Fonterra milk auction, but today the direction will come via the Aud$.

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