Equities lower. Currencies choppy but on hold ahead of the ECB today, NFP tomorrow.

The real action was in the equities markets today, which fell heavily and appear to have more downside to come. Currencies were choppy, after soft manufacturing data from both the EU and the US, but are generally unchanged, with the exception of the Yen which has strengthened following a slide in US yields. Today’s focus will be on the ECB, although ahead of that, Australia will look to the TD Inflation data, HIA New Home Sales, Building Permits & Trade Balance for guidance. The UK gets the Construction PMI and then the US will get the Jobless Claims, Factory Orders

EUR/USD: 1.2620

The Euro fell below 1.2600, to a low of 1.2583 following another soft round of EU manufacturing PMI’s (EU 50.3 vs 50.5 exp, Germany 49.9 vs 50.3 exp) but the dollar was unable to make further gains as traders began to book some profits ahead of today’s ECB meeting and with one eye on tomorrows NFP. Despite a firm US ADP jobs reading today, the US ISM Manufacturing data failed to meet expectations, giving the Euro some respite and allowing it to bounce to finish back above 1.2600, having briefly squeezed up to 1.2640 when US bond yields fell sharply.

All eyes will now turn to the ECB and some analysts are now looking for additional measures to be announced by Mario Draghi after the soft PMI’s and inflation data, released early in the week, that suggested that deflation may become an issue for the EU and would add to the pressure on the Euro.

Technically, despite the strong downtrend remaining intact, the short term charts actually look for once as though the Euro could drift a bit higher. 12640 will be the first hurdle, above which the 100 HMA is at 1.2670, a break of which would see a further run up to 1.2700/15. I don’t see it up here today, but the risks may be to the upside if Mario Draghi fails to do anything to follow up last month’s surprise move that began the strong move lower for the Euro from above 1.3100.

The downside will see bids at the session low at 1.2583 and then at yesterday’s 1.2570 low. Once that is out  of the way there is little to stop the Euro from heading to 1.2505 (76.4%of 1.2041/1.3995), below which would then open up the path for an even steeper decline towards the 22 July 2012 low at 1.2041.

Wait for the ECB and then go with the short term flow, but with the longer term view that we are eventually heading to 1.2500 and possibly quite a lot lower.

Economic data highlights will include:

EU PPI, ECB I/R Decision/Press Conference, US Jobless Claims, Factory orders.

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EUR/USD: 4 Hour

USD/JPY: 109.00

After taking out the option barriers and stops above 110.00 in Asia  the dollar was unable to carry on and retreated but sat close by 110  until the US got going. Plunging equity prices and US Treasury yields pushed the dollar sharply lower to sit just above 109.00 at the NY close having recovered from a brief dip to 108.86.

A correction has been due for some time and it could be that there is more to come, which would allow some unwinding of the short term charts although it could well be that the dollar sits close by current levels as traders wait for tomorrows NFP. Should the jobs numbers miss expectations, then the dollar will come under further downside pressure.

A sustained break of 109.00 would see a run back towards 108.50, a break of which would then see a run towards 108.25 and possibly to 108.00.

On the topside, it looks as though 110 will stay on hold today, and having broken below the 100 and 200 HMA’s (109.15/40) these will become the immediate resistances. Above this, further resistance will be seen again at 109.75/85 ahead of 110.

Above 110.00, if the NFP is a strong reading, would see a run towards 110.65 (August 2008 high), above which the dollar would head on to 112.50 (76.4% Fibo level of 124.13/75.56). Further out, a break of 112/113 would suggest that the dollar is on its way to the July 2007 high at 123.65 although we have a lot of work to do before then.

Right now, it looks to me as though we could be in for a retest of 108.50, but which if seen would probably be a medium term buying opportunity for another run towards 110.00.

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USD/JPY:4 Hour

GBP/USD: 1.6180

Cable fell to a low of 1.6161 following the release of the UK manufacturing PMI (51.6 vs 52.5 exp) from where it bounced to a high of 1.6250 and has since chopped around within the range but is finishing the NY session back below 1.6200. The UK Construction PMI will be released later today but most of the action will come via the cross following the ECB meeting, where the cross is hovering close to 0.7800.

For its part, Cable will see sellers at 1.6240 (100 HMA) and then at 1.6285 (200 HMA) and I would be doubtful of seeing it above 1.6300.

On the downside, today’s session low equalled the 16 Sept low at 1.6162 and should prove reasonably strong support. Below there would hint at a run down towards the recent 1.6050 low, seen just before the Scotland independence poll, albeit that this is some way off at this stage.

For the time being look for more choppy trade. There are easier things to watch than Cable right now but use 1.6150/1.6240 as a guide.

Economic data highlights will include:

UK Construction PMI.

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GBP/USD: Daily

USD/CHF: 0.9565

There is little change today in US$ Chf, although we do now have a minor double top  at 0.9595 which looks as though it may be tricky to overcome given the mildly bearish look of the short term indicators. As we discussed previously, any move above 0.9600 is going to be difficult as the dollar will run into some congestion which may prove tricky to overcome although eventually I do think we are going a fair bit higher. Patience required!

Various previous highs lie between 0.9600 and 0.9650 and I doubt that this is going to be easily overcome at the first attempt. Eventually though, I suspect 0.9650 will be taken out, which could see a quick acceleration towards 0.9750 (July 2013 high) and to the May 2013 high at 0.9837.

As with yesterday, it looks to me as though the dollar may have actually made a short term top today, and if we do head lower the initial bids will arrive at 0.9535 and then at 0.9500. I don’t think we are going below here, but if wrong, further weakness would see buyers at 0.9485 and then again at Friday’s session low at 0.9460. I doubt we see it, but below this, 0.9430/50 will see bids ahead of 0.9400 (200 HMA)..

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USD/CHF:4 Hour

AUD/USD: 0.8737

Having more or less reached the long term 0.8660 target (24 January low) after the soft retail sales yesterday, the Aud has bounced from 0.8662 to currently sit just below the 100 HMA at 0.8740, which will act as the initial resistance.

There is a fair bit of local data out today, with the Building Approvals being the main focus, and if the Aud can find the legs it could carry on to the broken SHS neckline at 0.8775, above which could see a further squeeze to 0.8800 although I don’t really see it today while traders wait for the ECB and more importantly the NFP tomorrow.

If the Aud data is soft again, which seems very possible, then back below 0.8700 would see another attempt on 0.8660, which should again act as strong support but below which would then head to the July 2013 at 0.8632. Below here there is little to suggest that the Aud will pull up ahead of the 50% pivot of the long term rally from 0.6006/1.1082, at 0.8538.

While the longer term trend does remain lower, I think the momentum will slow a little from here but any decent rally should be used as another sell opportunity.

Wait for the data and go with the flow.

For the Building approvals: m/m expected is +1.0%, prior was +2.5%. y/y expected is +12.7%, prior was +9.4%

Economic data highlights will include:

Aust TD Inflation, HIA New Home sales, Building Permits, Trade Balance, RBA Annual Report, China National Day:.

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AUD/USD:4 Hour

NZD/USD: 0.7785

It was a wild ride today, with the Kiwi squeezing higher and then spiking up to 0.7860 after the slide in US yields, only to collapse back to 0.7760 after the result of yet another soft Fonterra Milk Auction, since when it has chopped around below 0.7800.

More choppy trade looks in store but with a downside bias, and looking as though we could be in for a retest  of the decent support at 0.7701 (50% of 0.6560/0.8842), with minor interim support seen at today’s  low at 0.7760 and then at 0.7740.

A break of 0.7700 would head to the 24 June 2013 low at 0.7682, below which there is minor support at 0.7660 but realistically there is nothing to hold the Kiwi up until the May 2012 low at 0.7452 and the 61.8 % Fibo support of 0.6560/0.8842 at 0.7430.

Look to sell rallies above 0.7800, hopefully towards the session high, for an eventual retest of 0.7700 and lower.

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NZD/USD:4 Hour