US$ softer on WSJ article implying a less hawkish FOMC. Commodity bloc, Stocks higher.

It was a fairly directionless session today until news of a large injection of liquidity into the Chinese system from the PBOC which gave an immediate boost to risk assets, including stocks and the commodity bloc currencies. A WSJ article, suggesting that the Fed will be less hawkish than previously hoped undermined the dollar somewhat, although is has since stabilised as focus now turns to what the Fed actually do decide to say at today’s FOMC. Other action will include the EU & US CPI’s and the BOE Minutes. Scotland votes tomorrow.

EUR/USD: 1.2960

EURUSD was doing comparatively little today, largely ignoring the weaker German ZEW and then the US PPI – which came in at expectations – and seemingly happy to wait for the FOMC, later in the coming session.

The announcement on a Chinese website that China is to boost liquidity to the five largest banks in China to the tune of 500 billion Yuan softened the dollar as markets looked to buy risk assets. It was then further undermined after the WSJ reported that the Fed’s ‘considerable time’ phrase, which has been the focus all week, is likely to remain in the language of the statement when Yellen advises the market as to when interest rates might be expected to rise. The dollar headed sharply lower, sending the Euro straight to 1.3000, which has so far capped it, before it eased back to finish the NY session at 1.2960.

We now wait on the Fed, and until then little is likely to happen, although the EU and US CPI will both be closely watched. Asia will be on guard to see if there are any further clarification from China on the overnight news announcement.

Technically, the momentum in the short term still points to the chance of higher levels for the Euro, and if the sellers at 1.3000 can be overcome then we could be headed above the descending trend resistance and on 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 then build up a head of steam and head back to the level from where it broke lower last week at 1.3100/05 and then to the next Fibo level(38.2%)/descending trend resistance (pink line) at 1.3155. Above there would head to the Fibo resistance at 1.3270 (38.2%), which, if seen it would then be a sell, having cut many of the current shorts out of their position.

If the Fed turn out to be as hawkish as the market has been expecting, we are likely to see a quick test of 1.2900 and below. If so, the Euro will 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.

Wait and see will be the main game today, but even if the Fed are dovish I still think that selling rallies in the Euro is the way to go in the medium term.

Economic data highlights will include:

EU, US CPI, FOMC/ Statement/Press Conference, G20 Meeting.

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EUR/USD: 4 Hour

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USD/JPY: 107.15

The dollar traded in a tight range until the release of a WSJ article by John Hilsenrath, suggesting that the Fed is unlikely to take any major steps toward shrinking the window by cutting the “considerable time” phrase from its statement .

Expect a tight session today ahead of the FOMC. Technically there is little change from the last couple of days.

If /when the 107.35 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 this would be important as there is again not much resistance to be seen until the descending trend line, joining the Feb 2002/June 2007 highs, at 109.20 (see monthly chart below), and then at the August 2008 high at 110.65. Above there would head on 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 106.80, and then below this at Thursdays spike low at 106.65. It does not look as though we are going to see it back 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.

Look for a tight consolidation again today near 107.00 ahead of the FOMC..

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USD/JPY:4 Hour

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GBP/USD: 1.6275

Cable moved to a session low of 1.6163 after slightly weaker UK CPI/PPI, before turning higher on the release of the WSJ report that accelerated the short squeeze up to as high as 1.6310, before settling the end of the NY session at 1.6270.

Although today’s action will depend largely on the outcome of the FOMC, the UK will get the BOE minutes at which the market will be looking to see how many members of the MPC are likely to vote for a rate hike,  although the vote would be made rather redundant in the event of a “Yes” vote in the Scottish referendum tomorrow. If the Yes vote wins the day it is hard to see any chance of a rate hike given the likely very negative flow-on effect to the UK economy. We shall have to wait and see on that one but with Betfair already paying out on a “No” vote win it looks like the “Yes” vote will have to wait for another day.

Technically, Cable has now filled the closing gap from last Monday week. If it can build on its gains, which would happen in the event of a hawkish BOE/dovish FOMC today, then above 1.6310 (1.6318: 23.6% of 1.7191/1.6051) could see quite a strong bounce up towards minor resistances at 1.6350 and 1.6430, which come ahead of more solid sellers to be seen at 1.6480 (38.2%). I don’t think it will head that high as traders will still be wary of a “Yes” vote in Scotland tomorrow, so gains should be tempered, at least until the outcome of the vote.

The downside will see minor bids at 1.6230/1.6210 (100/200 HMA’s) and then below 1.6200, at the session low at 1.6163.

As we said before, although it looks unlikely, if the Scotland vote decides on going for independence, 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.

Economic data highlights will include:

BOE Minutes, UK Unemployment, Average Earnings.

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GBP/USD: Daily

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USD/CHF: 0.9325

As everywhere else, the dollar came under pressure today following the WSJ article, heading down to 0.9300 before bouncing to finish the NY session at 0.9325.

All now depends of the FOMC but the 4 hour indicators suggest that we could yet see another test of 0.9300 and below, towards 0.9285 and possibly 0.9270 (50% pivot of 0.9838/ 0.8698). Below there, would see a run towards further Fibo levels at 0.920 and then at 0.9200.

On the topside, if the Fed are as hawkish as the market has led itself to believe they will be, then the dollar will take out the recent highs at 0.9372 and 0.9393 and would severely test 0.9400 (61.8% Fibo level of 0.9838/0.8698). This will not give way easily but beyond here the next target would be the 6 Sept 2013 high at 0.9455, above which there is little to stop the dollar heading to 0.9570 (76.4% Fibo level of 0.9838/0.8698).

I still prefer the idea of buying dips, but wait and see what the Fed have to say..

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USD/CHF:4 Hour

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AUD/USD: 0.9085

The Aud was choppy but going nowhere too far either side of 0.9000, having earlier failed at the weekly cloud base resistance at 0.9050, until the news of a liquidity injection from the PBOC of 500 bio Yuan (US$82 bio) sent risk assets and the Aud soaring, taking out the 0.9050 resistance and heading on to a high of 0.9112, before finishing the session at 0.9090.

The market will be looking for clarification from the PBOC today, but largely, I suspect we will hang close to 0.9100 for much of the day, waiting for the FOMC.

While the dailies still remain negative, the short term indicators are pointing higher, and having now broken above the steep descending trend resistance, if the session high at 0.9112 can be overcome, then look for a run towards 0.9145 (minor) and to 0.9175 (38.2% of 0.9505/0.8982). A cautious Fed could see further gains towards 0.9225 (50% pivot) and possibly back towards the head/shoulder neckline at 0.9245. I would be a seller here if we see it,  with a tight stop placed somewhere above 0.9280.

If the Fed are hawkish, as the market has been expecting, then look for a return to 0.9000 and below, to the weeks 0.8982 low. Below here would then find bids at 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 and where the Aud should find some support. If the Aud keeps falling, then we could be in for a decline towards 0.8923 (12 March low), 0.8890 (3 March low) and possibly to 0.8860 (76.4% of 0.8860/0.9505).

Time to be square I think, but the overall view of selling into strength remains the same.

Economic data highlights will include:

WBC Leading Index.

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AUD/USD:4 Hour

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NZD/USD: 0.8200

The Kiwi is back at 0.8200, having seen a session high of 0.8230 after the China/WSJ stories combined to put a bid tone under risk assets.

The short term indicators are pointing towards the chance of further gains, and if 0.8200/30 were taken out on the back of a more dovish Fed, then we could see a run back to the trend resistance at 0.8255 and then the Fibo level at 0.8290 (23.6% of 0.8838/0.8122). Above here would see a return to the 4 Sept high at 0.8350.

If the Fed turn out to be hawkish, then the Kiwi will return back to support at the Fibo level (61.8% Fibo 0.7670-0.8839) at 0.8145 and at the 200 WMA at 0.8135 which both lie ahead of the recent 0.8122 low. Below this, the Kiwi is likely to head quickly to 0.8100 beneath 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).

A further short term squeeze higher looks possible but the medium term downtrend remains intact so selling rallies remains the preferred strategy.

Economic data highlights will include:

NZ C/A.

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NZD/USD:4 Hour