Forex - USD Selling Continues On Dovish FOMC Minutes

Forex News and Events:

Risk appetite saw no sign of abating on the back of strong corporate earning and better than expected retail sales. In addition, yesterday’s robust China imports and exports data also suggests that EM Asia remains the core driver of the recovery in global growth, which should support commodity producers. DXY slipped to new lows and the EURUSD cleared the 1.4950 level. September US retail sales dipped m/m -1.5%, better than the expected -2.1% m/m fall. The FOMC minutes contained no new insights, but reiterated the concept that that economic recovery in the US was ongoing, but was controlled. What did come to light is apparent tension developing between the hawks and doves (which we have also seen in recent official speeches). The doves seem to have the stronger argument, pointing to "slack in both labour and product markets would be substantial over the next few years, leading to subdued and potentially declining wage and price inflation." The doves advocate increasing the MBS purchase limit beyond the current ceiling of $1.25 trn, a move that put pressure on the USD. The hawks on the other hand, put more stress on inflation expectations, which they are concerned will rise unless the Fed initiate a reversal of its ultra loose policy stance near term. Markets will be particular in watching this growing divergence of views within the committee. The key takeaway in our eyes is how the minutes clearly show that the FOMC is a long way from tightening and balance sheet reduction While risk appetite remains the core drive to FX pricing, monetary policy differentiation is becoming increasingly important. In New Zealand, CPI data provided a large upside surprise as inflation printed up 1.3% q/q and vs the RBNZ’s forecast for 0.9% headline inflation. This jump in inflation along with decent recoveries in consumer spending and business confidence should put the pressure on the RBNZ to stop the rate cutting comments. The NZD has performance well (along side the commodity bloc), which has concerned policy officials and we expect them to become more vocal over their dislike of a strong NZD in the near term. And in Australia RBA Governor Stevens' sounded very hawkish in a speech today, where he made clear that the RBA would be removing its emergency rate relatively quickly. Japanese officials continued to comment on the JPY strength, implying that they where not trying to prevent JPY appreciation. Finance Minister Fujii stated yesterday that the JPY is overly strong (closer to long run average) and they are not interventionists when it comes to FX. Highlights in the coming sessions include Eurozone CPI and Swiss ZEW, before a raft of US figures in the afternoon including CPI, Empire State Manufacturing and Philadelphia Fed Manufacturing Index. The big earnings releases for the day include Goldman Sachs, Citigroup and Safeway. One key risk event today will be Trichets speech since there is a probability that he mentions recent EUR weakness. 

Today's Key Issues (time in GMT):

00:00 TRY CBT interest rate announcement, % 7.25% prior
08:00 EUR ECB monthly bulletin published
06:00 EUR New car registrations, % y/y (nsa)Sep 9.9 exp
09:00 EUR HICP, % m/m (y/y)Sep 0.1 (-0.3) exp, -0.3 'flash' prior
09:00 EUR HICP ex tobacco, index (2005 = 100) (y/y)Sep 107.89 (-0.3) prior
09:00 EUR ''Eurostat' core (HICP x fd, alc, tob, ene), % m/m (y/y)Sep 1.2 exp
09:00 EUR ''ECB' core (HICP x unproc.fd, ene), % m/m (y/y)Sep 0.3 (1.2) exp, 0.3 (1.2) prior
11:25 EUR ECB President Trichet speaks on "Lessons from the Crisis" at an economic conference
12:30 USD Consumer Price Index, % m/m (y/y)Se 0.2 (-1.4) exp, 0.4 (-1.5) prior
12:30 USD Core CPI, % m/m (y/y)Sep 0.1 (1.4) exp, 0.1 (1.4) prior
12:30 USD CPI NSA, index Sep 215.834 exp
12:30 USD Empire State manufacturing index Oct 18.00 exp, 18.88 prior
12:30 USD Initial jobless claims, thous (4wk mvg avg) 525 (534) exp, 521 (540) prior
13:45 USD FRB of St. Louis President Bullard gives welcoming remarks at St. Louis Fed conference
14:00 USD Philadelphia Fed manufacturing indexOct 12.0 exp vs 14.1 prior

The Risk Today:

EurUsd Yesterday we said that we expected 1.4876 to provide an intraday resistance level followed by a brief pause. After hitting 1.48758 the pair settled back for the rest of the day to trade around the 1.4805/15 mark where the bulls waited patiently for the Intel numbers. Having beaten the estimates in every aspect - net income, revenue and margins - risk appetite is fully intact overnight and the EUR bulls have now taken the pair through the major resistance at 1.4950. Next stop from here is 1.4967 and thereafter 1.5346. The only hope for the bears here is that the RSI rolls over on a 4 hour chart and gets back below the downtrend line asap, otherwise one has to step aside and let the bulls take it to wherever they like.

GbpUsd After flirting with the last of the support levels at 1.5724 yesterday morning, the pair is holding firm and catching a bid from the uptrend players once again. Horizontal resistance 1.6127,attract some sellers intraday but failed to hold. The pair would faces congestion between 1.6272 and 1.6381 with long term GBP sellers likely to take advantage.

UsdJpy 10 week downtrend on USDJPY was still playing out nicely and that 90.00 level represented a decent short entry. After touching 89.77 intraday the pair has slipped 89.30 region and the downtrend is obviously still intact and deserves respect. 89.00 now looks like the area to attract new shorts with 88.59 and 88.23 providing support below. Only a break above 90.20 puts this downtrend in jeopardy.

UsdChf Looking at the big picture on USDCHF, there are some interesting developments for the bears. Firstly, the pair is this morning broke the support at 1.0186, should take the pair close to parity at 1.0037. This is also the target from the descending triangle that we mentioned some weeks ago so there is likely to be some mass short covering around that level. The only hope here in the short term for the USD bulls is the RSI divergence on a daily chart and the stochastics are sitting in an oversold zone but there is every chance that the pair can hit the parity target first and the divergence and oversold long players come in at that 1.0037 level. Watch for a break of the 4 hourly RSI below 30 to confirm further weakness as this may occur before the price action itself.

Resistance and Support: