Aug: FOMC minutes underpin both the US$ and equities ahead of Jackson Hole.


Aud rangebound, Kiwi heavy, ahead of HSBC China manufacturing PMI.

The dollar is stronger today following the slightly hawkish stance of the FOMC Minutes, which hinted at the potential for an earlier-than-expected hike in interest rates. Nothing is likely to happen any time soon though, and equities liked that idea in continuing their positive trend, with the S+P regaining its all time high. Markets will now most likely sit on their hands until Fridays economic summit at Jackson Hole, where both Janet Yellen and Mario Draghi will be speaking on Friday. Ahead of that, the main focus will be on today’s global manufacturing and services data, and the UK Retail Sales.


EUR/USD: 1.3360

The dollar is stronger again, having been bid all day, and is closing the US session on its high following the slightly more hawkish take on the FOMC Minutes. The main headline suggested that Fed policymakers wanted more evidence before hiking rates although some members felt that a “relatively prompt” move may be warranted.

The Euro could well remain under further pressure today if the manufacturing PMI’s come in below par although there is plenty of other data out as well (US Jobless Claims, Philly Fed & Existing Home Sales) to provide some direction ahead of tomorrow’s economic summit at Jackson Hole. With both Janet Yellen and Mario Draghi speaking it could be a busy end to the week, with the market looking particularly towards Draghi, who many feel may use the summit to announce a further easing of liquidity in order to boost growth in the EU. Watch today’s PMI’s closely.

Technically, having taken out the support at 1.3300, the Euro has headed down to a low, so far of 1.3255. It still looks very heavy, although there are bids protecting 1.3250, which may hold through the Asian session. The rapid fall this week has been a bit of a surprise, but now we are down here, and having broken well away from the base of the weekly cloud (1.3315) the way does appear to be open to lower levels. The next meaningful supports are to be seen at 1.3228 (61.8% of 1.2754/1.3993), below which there is not a huge amount to hold the Euro up ahead of 1.3104 (6 Sept ’13 low).

While the strategy of holding a core short Euro position remains in place, the shorter term charts are oversold and we do need to allow for a bounce, which could well come about if Janet Yellen is more dovish than anticipated, which would undermine the dollars recent run, and/or Draghi is less dovish, which would put a bid tone back in the Euro. Overall if not already short, look for levels to sell into seems to be the play.

The points to watch on the topside are initially at the minor Fibo level at 1.3290. Above 1.3300, which looks a bit unlikely today, 1.3315 will see sellers. Above here, the previous strong support at 1.3335/4 will now act as resistance as will 1.3360 and 1.3400, which looks unlikely to be bothered again for a while.

As we mentioned yesterday, a weekly close below 1.3315 would have quite bearish implications and will be worth watching at Friday’s close, and would suggest that the eventual target for the Euro appears to be the 9 July low 2013 at 1.2754, albeit that it looks somewhat distant for the time being, but I notice that some major players are calling for an eventual run towards 1.2200 as a distant target.

Economic data highlights will include:

Flash Markit EU Mfg/Services/Composite PMI’s, Flash Markit US Jobless Claims, US Mfg/Services/Composite PMI, Existing Home sale, Philly Fed Mfg Survey

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EUR/USD: 4 Hour


USD/JPY: 103.76

The dollar reached the 103.00/10 level that had previously acted as a hindrance, and then having overcome those offers, it has accelerated higher since the release of the FOMC minutes, which recognized the improving labour market and the steps being taken towards an eventual tightening of rates.

As we said before, once 103.00/10 was overcome, there is not too much to stop the dollar from accelerating towards the 3 April high at 104.10, which now looks to be very possible, having so far traded up to 103.84. Beyond 104.10, the next target coming into view would be the 21 Jan high at 104.74, while further out, we could well be making a run towards the 200 month MA at 106.50; currently some way off but worth watching.

While the daily charts appear to be building up some strong positive momentum, the shorter term charts are now at overbought extremes and we may need some consolidation for a while before further progress to be made.

The spike higher does make the dollar a bit vulnerable to a potential sharp reverse back towards 103.00 although at this time this looks unlikely. As long as we do not get an unexpected headline from the Ukraine announcing an escalation in military activity, which would see short Yen positions running for cover, I suspect the dollar will consolidate below 104.00 while it builds the strength for the next leg to the upside. Exporters will probably cap the dollar up here today ahead of 104.00, not having had an opportunity to sell dollars at these levels since early April.

103.50 will see minor bids now, below which 103.00/10 would provide support. Back below there, which looks unlikely, 102.70/80 and then 102.40 (200 DMA).

Maintain the long dollar position, but allow room to buy dips with a tight SL just below 103.00.

Economic data highlights will include:

Foreign Bond/Stock Investment, Flash Nomura Mfg PMI

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USD/JPY: 4 Hour


GBP/USD: 1.6595

It was a rock and roll session for Cable today, and after having initially held support at 1.6600, it soared to 1.6678 on the release of the BOE minutes, when the MPC vote on interest rates came in 7-2 (as against the expectation of a 9-0 vote to keep rates on hold), with Weale & McCafferty voting for a hike. It then consolidated around 1.6650 until the FOMC minutes, which took the dollar higher again, sweeping away the 1.6600 Sterling bids and trading to a low so far of 1.6589.

While the main focus today will be on the EU PMI’s, the UK sees the Retail sales so we could be in for another busy session.

Now trading at close to 1.6600, the 4 hour charts remain negative, albeit that they may be showing some minor bullish divergence, but if Cable does head lower the next port of call could be the 4 April low at 1.6551. Further losses would then hint at a deeper decline, for a run towards the 24 March low at 1.6462. For the time being, Cable should find some bids around here as we are at the base of the channel, but wait for the retail sales to see if this can hold.

On the topside, back above 1.6600 would potentially see a squeeze back towards minor trend resistance at around 1.6650 and then to the day highs around 1.6678, where the Fibo resistance (23.6% of 1.7191/1.6589) and the 200 DMA also lie. Above that sees a return to 1.6700 but looks unlikely.

The strategy remains the same. Sell rallies with a SL above 1.6680.

 Economic data highlights will include:

UK Retail Sales

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GBP/USD: 4 Hour


USD/CHF: 0.9130

The dollar has finally taken out the resistance levels between 0.9100 and 0.9130, currently sitting at the top end of the range. Support will now be seen on a return to 0.9100 and below there at 0.9085 and at 0.9070 where the 100/200 DMA’s are crossing higher.

On the topside, a clean break of 0.9130 (23.2% of 0.9838/0.8698) would see a run up towards the 100/200 WMA’s, which both currently lie at around 0.9160. This should be strong resistance, but a break of which would suggest a run up towards 0.9190 (20 Nov ’13 high) and then to 0.9249 (7 Nov 13 high).

The strategy remains the same. Stay long dollars, but possibly look to fade into the rally as we approach 0.9160 as the resistance up there should contain it at the first attempt.

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USD/CHF: 4 Hour


AUD/USD: 0.9290

The Aud has chopped around today, but without any real directional flows. After gyrating around between 0.9280 and 0.9317 for the greater part of the session, the Aud fell from its highs down to a session low of 0.9274 on the release of the FOMC minutes, before bouncing back to where it currently sits at 0.9290.

Good interest to buy the Aud on the crosses, particularly against the Yen, has seen it well underpinned today and we are probably in for more of the same choppy trade in the coming session. The Aud seems somewhat trapped by the need for yield, which is underpinning it, while at the same time it is going to find it difficult to make any upside progress in the face of the stronger US$.

Technically there is no change.

0.9295 (200 HMA) continues to act as a pivot, and a break to the downside would see a retest of the 0.9274 session low, below which would most likely see a return towards the important support at 0.9260, which should again see good buying interest. Below here would hint at a return to last week’s low at 0.9239. I don’t think this is going to be bothered today, but a break of 0.9240 would most likely see an acceleration towards 0.9200. Under here, the next target would be 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 much 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, above 0.9300 would potentially see a retest of the session high at 0.9317, above which 0.9325 and then 0.9340 (100 DMA: 0.9336) will once more find decent sellers. I can’t see it above here today, but if wrong, we could be in for a run towards 0.9355 (daily cloud base/Kijun) and possibly back towards 0.9373(6 Aug high) and 0.9382 (61.8% of 0.9472/0.9239). Above this would open the way up for a run to 0.9400 and possibly to 0.9416 (76.4%).

As with yesterday, use 0. 9280/0.9320 as a guide, with a bias towards trading from the short side over the next couple of days but watch out for the HSBC Flash China manufacturing PMI today (exp 51.5) which may provide some mild volatility.

Economic data highlights will include:

Flash HSBC Mfg PMI

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AUD/USD: 4 Hour


NZDUSD: 0.8375

The Kiwi has had a choppy session but is ending close its lows after earlier having taken out the 0.8400 support. Having done so, there is not much support to hold it up and a deeper decline seems possible that would most likely head towards the next meaningful support levels at 0.8275/0.8300. The short term charts remain negative and thus selling into near term rallies seem to be the plan and I don’t really see it above 0.8400/10 again for a while, and would consider any rally as an opportunity to get short.

If wrong, a further squeeze would take the Kiwi back towards 0.8450(100/200 HMA) and then to yesterday’s session high at 0.8465.

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NZD/USD: 4 Hour

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