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Forex − Major Risk Events Pass And Point To Further USD−Selling Into Year End

Fri, Nov 6 2009, 11:36 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets

Forex News and Events:

With the major central bank meetings of November out of the way and Q3 corporate earnings on the table, investors have already digested most of the major risk events likely to sculpt FX markets up until year-end. Continued improvement in the economic backdrop coupled with central bank assertions that accommodative policy will remain in place for the time being leaves us in a sweet spot of cheap liquidity and heightened risk sentiment; meaning ample fuel for further asset rallies, and consequently the USD should remain under selling pressure in the coming months. The FOMC made it clear on Wednesday that a return to growth alone is insufficient grounds to stimulate a shift in their policy stance, while the ECB yesterday reaffirmed that it is too soon to withdraw stimulus measures. The longer this rally continues, the more current levels of pricing become entrenched in the investor mindset, and we believe this lessens the likelihood any corrections will turn into a full-blown rout. The key event for today is US non-farm payrolls; a number given heightened importance since the FOMC highlighted that both the labour market and subdued inflation were its main concerns ahead of adopting a more hawkish stance. Nevertheless, the scope for the USD to benefit from the number is far less than the scope for risk assets to rally; essentially any worse than expected figure or number broadly in line with -175k forecasts will ensure the Fed’s willingness to stay firm in their current approach, while the kind of number needed to convince policy-makers that labour markets are back on the road to recovery would have to be very high, and we’d really need to see the Unemployment Rate (9.9% expected, 9.8% last) start to tick lower – a scenario we see as exceedingly unlikely. So far today the performance of Asian equity markets (all broadly higher) and gold (pushing back towards highs at $1095 at the time of writing) seem to support our theory that the bias should be for further USD weakness after NFP. We do not however expect market participants to force a breakout of key resistance levels up until the risk event is out of the way. Meanwhile this morning’s data events have included Swiss Unemployment that was in line with forecasts at 4.0% in Oct. USDCHF barely reacted to the figure, but as emphasized by SNB member Jordan this week, the main focus for monetary policy from here continues to be inflation data, and this reading will have done nothing to negate the -0.8% YoY CPI from yesterday. Norwegian Industrial Production (0.9% MoM) and Manufacturing Production (2.2% MoM vs. 0.4% expected) were both impressive, sending EURNOK back to 8.4110 levels, but again, wariness ahead of NFP has slowed further gains for NOK. Meanwhile UK PPI data painted an uncomfortable picture for the UK as PPI Input data for Oct jumped 2.6% MoM, but output prices could only muster a 0.3% gain. Resilient as ever, GBPUSD held firm amongst some choppy price action immediately around the release, and is still now at elevated levels above 1.6600.

Today's Key Issues (time in GMT):

11:00 EUR Germany: New manufacturing orders, % m/m (y/y) Sep exp: 1.0 (-13.7) prev: 1.4 (-21.1)
13:30 USD Change in non-farm payrolls, thous Oct exp: -175 prev: 263
13:30 USD Unemployment rate, % Oct exp: 9.9 prev: 9.8
14:00 USD Wholesale inventories, % m/m (y/y) Sep exp: -1.0 (-14.7) prev: -1.3 (-14.7)

The Risk Today:

EurUsd 1.4905 is again providing some resistance this morning with scalpers taking an ever decreasing number of pips from their trades and in the process forming an ascending triangle formation on the hourly chart. Today will likely see a test of the short term downtrend at 1.4930 / 50 and a strong close above those levels will make the medium term uptrend look like it is back in play. The bears now really need a move below 1.4750 to regain their confidence. Expect little action before Non-Farm Payroll numbers out today at 13:30 GMT.

GbpUsd 1.6600 continues to cap the pair with yesterday’s attempt met with heavy supply at 1.6620. Short term the pair is edging slightly higher by the day, currently trading at the top end of the minor uptrend right in front of serious resistance and long term downtrend at 1.6663. Intraday players may well be looking at 1.6484 for a long entry and continuation of selling the higher highs in to the 1.6620 region.

UsdJpy Consolidation is taking place in USD JPY in early trading as the pair trades between the 90.90 region and 90.00. As this range gets tighter and tighter over the course of the last several days, the pair has formed a symmetrical triangle which can break in either direction. The range of the triangle is now 90.20 – 90.70 so a break outside of those ranges could potentially see a 2 figure move in the same direction over the coming sessions.

UsdChf We discussed an intraday short yesterday from 1.0186 to the 1.0132 region which played out rather quickly but since then there has been little action to be taken from a technical standpoint. There is obviously support at that 1.0132 region but for now that is about it – rangebound between 1.0132 and 1.0186…… until this afternoon’s US data at least

Resistance and Support:

Published on  Fri, Nov 6 2009, 11:36 GMT