Safe-Haven Flows Dominate

Forex News and Events

Global risk appetite is weak driving capital to safe-haven trades, in the Asian session after yesterday’s US tech led sell-off. Asian equity markets are broadly weaker with Australian and Japan seeing the largest losses (-1.28% and -0.88% respectively). Rumors (sources quote the Russian State Duma’s Web site) that a law in Russia is being drafted which will allow the seizure for foreign states assets did not help the general negative sentiment. Investors are debating if slowing growth or geopolitical risk are at the center of this sell-off. Volatility is higher in stocks and FX while bond yields have dropped. Even recently maligned gold has caught a marginal bid to $1225. In FX markets, the USD continues to find buyers while high-yielding currencies are on offer. EURUSD was range bound after yesterday’s sharp sell-off as ECB Draghi suggested that unorthodox measures are still on the table. Geopolitical concerns, worriers over regional growth outlook and ECB easing expectations will likely continue to push EUR lower. Today’s, German consumer confidence read which is expected to drop to 8.5 from 8.6 might be the catalyst for more EURUSD selling (however, market remain focused on declining medium-term inflation expectations rather than growth issues). The Asia FX block was hit hard as the IDR, INR and KRW were sold heavily due to negative regional news that the Indonesia’s parliament would drop direct elections of officials. Within, EM FX, only the RUB lost more ground while USDBRL is nearing its critical range high near 2.45. In Japan, core inflation decelerated to 3.1% y/y vs. 3.2% exp in August. Market has anticipated some slowing but the pace of this read was marginally faster than expected. In theory this downward trend would put some pressure on the BoJ for further easing. Yet there is the belief that dis-inflation will run till October before heading higher. The spill-over effect into JPY was therefore limited, also noted was the lack of demand from safe-haven flow. However, some weakness in JPY was noted when Labor Minister Shiozaki stated he will push reforms of the Government Pension Investment Fund (GPIF) ahead of needed law revision.

US Data

US data’s, upwards trend continues to firm, increasing expectations for the Fed to change their language at the October meeting. Yesterdays, US durable goods orders headline figures sharp decline provide many with an opportunity to doubt the US recovery. Yet the fall was broadly expected due to massive jump in Julys aircraft orders (22.6% m/m in July) but the core durable goods orders and shipments read was solid. Weekly unemployment claims were mildly better than expected which set the stage for next week NFP to come in around 250k. Investors will be focused on today’s final estimate for the US Q2 GDP where the market is looking for an upwards revision to 4.6% from an advanced estimate of 4.2%. Finally, consensus for the final September Michigan consumer sentiment reading is for 84.6 from 84.6.

Today's Key Issues (time in GMT)

2014-09-26T05:30:00 SEK Aug Trade Balance, last 1.9B, rev 2.4B
2014-09-26T10:30:00 USD 2Q T GDP Annualized QoQ, exp 4.60%, last 4.20%
2014-09-26T10:30:00 USD 2Q T Personal Consumption, exp 2.90%, last 2.50%
2014-09-26T10:30:00 USD 2Q T GDP Price Index, exp 2.10%, last 2.10%
2014-09-26T10:30:00 USD 2Q T Core PCE QoQ, exp 2.00%, last 2.00%
2014-09-26T11:55:00 USD Sep F Univ. of Michigan Confidence, exp 84.8, last 84.6
2014-09-26T21:01:00 GBP Sep Hometrack Housing Survey MoM, last 0.10%
2014-09-26T21:01:00 GBP Sep Hometrack Housing Survey YoY, last 5.50%

The Risk Today

EURUSD EUR/USD is challenging the strong support area between 1.2755 and 1.2662. The short-term momentum is negative as long as prices remain below the hourly resistance at 1.2901 (23/09/2014 high). An initial resistance can be found at 1.2816 (22/09/2014 low).In the longer term, EUR/USD is in a succession of lower highs and lower lows since May 2014. The strong support area between 1.275(09/07/2013 low) and 1.2662 (13/11/2012 low) is challenged. An eventual break lower is expected. A resistance lies at 1.2995 (16/09/2014 high). Another strong support lies at 1.2043 (24/07/2012 low).

GBPUSD GBP/USD has broken its short-term rising trendline, favouring a corrective phase towards the support at 1.6162 (16/09/2014 low). A break of the hourly support at 1.6285 would confirm this scenario. An hourly resistance lies at 1.6416, while a key resistance stands at 1.6525. In the longer term, the collapse in prices after having reached 4-year highs has created a strong resistance at 1.7192, which is unlikely to be broken in the coming months. Monitor the recent rebound as it could signal the start of a medium-term consolidation phase. A support lies at 1.6052, while a strong support stands at 1.5855 (12/11/2013 low). A resistance stands at 1.6644.

USDJPY USD/JPY is moving sideways near the major resistance at 110.66 (15/08/2008 high). Monitor the horizontal range defined by the hourly support at 108.26 and the hourly resistance at 109.46. Another hourly support can be found at 107.39. A long-term bullish bias is favoured as long as the key support 100.76 (04/02/2014 low) holds. The recent new highs confirm a strong underlying bullish trend. A break of the major resistance at 110.66 (15/08/2008 high) is eventually favoured. Another resistance can be found at 114.66 (27/12/2007 high).

USDCHF USD/CHF has broken the strong resistance at 0.9456. However, yesterday's large daily upper shadow (shooting star) suggests a pickup in selling pressures. Hourly supports can be found at 0.9433 (18/09/2014 high) and 0.9353 (23/09/2014 low). An hourly resistance now lies at 0.9515 (25/09/2014 high). From a longer term perspective, the technical structure calls for the end of the large corrective phase that started in July 2012. The strong resistance at 0.9456 (06/09/2013 high) has been broken. Another key resistance lies at 0.9751 (09/07/2013 high). Supports can be found at 0.9301 (16/09/2014 low) and 0.9176 (03/09/2014 low).

Resistance and Support: