Forex - Dollar Regains Some Ground Ahead Of Earnings Next Week

Forex News and Events:

The USD has clawed back some ground today; DXY is strongly off its 75.77 lows (last at 76.25), a development attributed to Bernanke comments that the Fed would be ready to tighten rates once the economy improves. But in our minds the reaction is a little bizarre considering the remarks were identical to those published in a WSJ article dated 21 July this year: “I believe that accommodative policies will likely be warranted for an extended period. At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road.”. Nevertheless, the market chose to re-interpret the remarks as hawkish, causing EURUSD to retreat to 1.4700 support and gold to withdraw from the frontier to intraday support at $1046. The USD weakness trade has paid off fantastically in the past week, and we would not be surprised if a little profit-taking were to come ahead of next week’s spate of major earnings releases. Most of the heavy-weight financials will start reporting from Wednesday through to the start of the following week; the results of which will be pivotal to confidence in the financial system and economic sentiment going forward. The Q3 releases thus far have all been impressing to the upside, including aluminium giant Alcoa. If these early indicators are anything to go by, the USD could be in for further tough times ahead. ECB’s Trichet was steadfast yesterday in avoiding direct comment on levels of EURUSD, and with the weakest in the pack, GBP, getting a reprieve until the BoE’s November meeting, the feeling is that investors have the green light to continue current trends. The main data releases of the morning have been Norwegian CPI and UK PPI. The headline Norwegian print of 0.8% MoM in Sep vs. expectations of 0.5% has once again underlined the likelihood of a Norges Bank hike in the upcoming 28 October meeting, EURNOK dipped to a low of 8.2940, and it seems any rallies to get into this trade will be hard to come by with continually better than expected data releases. Meanwhile UK PPI figures were higher than consensus forecasts, but this was largely anticipated and GBPUSD has continued to grind lower as the USD continues its resurgence (last 1.5970). This afternoon the main item on the agenda will be Canadian Unemployment, which is expected to rise to 8.8% in Sep from 8.7% prior. USDCAD has spent the last few days toying with downside levels around 1.0530, but officials has expressed their concern that the labour market remains soft, so watch for surprises either way on this one. 

Today's Key Issues (time in GMT):

11:00 CAD Cad: Unemployment Rate, % Sep exp: 8.8% prev: 8.7%
11:00 CAD Cad: Net Change in Employment, k Sep exp: 5.0 prev: 27.1
12:30 USD US: Trade balance, $bn Aug exp: -33.0 prev: -32.0

The Risk Today:

EurUsd EURUSD failed to hold above 1.4800 despite the USD sell-off yesterday, and any rallies will find face headwinds from 1.4845 and thereafter the major resistance at 1.4876. The 10 month uptrend now comes in at around 1.4570 so expect any weakness to be met by fresh demand at those levels. Support before that at 1.4684 and 1.4615.

GbpUsd Yesterday GBPUSD forced itself higher through resistance at 1.6050 and ran stops to touch a high of 1.6120. It's lower today as good supply remains between 1.6100/30 and1.6190 (the 21 dma). From here, first support is 1.5950, if breached target 1.5800.

UsdJpy USDJPY rallied higher after Bernanke comments but was again stalled into 89.40-50 resistance. The pair has found good support at the lower downtrend channel of the entire 6 month down move around the 88.23 level but a break lower would be targetting the 14 year low of 87.07.

UsdChf USDCHF again bounced strongly off suport at 1.0235 to above 1.0300 levels. With EURCHF finding a footing above 1.5160 we look to buy on dips in USDCHF from 1.0280-90, targetting a revisit of 1.0400. On the downside, a breach of the 1.0235 support would open us up to a revisit to the low at 1.0186.

Resistance and Support: