MPC Minutes Explain Stimulus Expansion

Forex News and Events:

The Bank of England released today the minutes of its latest MPC meeting during which the central bank decided to increase the size of its asset purchase program. The minutes show that the vote was heavily tilted towards an additional stimulus by a count of 7 to 2, and members seemed to be thinking about cutting the interest rate, which is already at record lows. The members thought that the case for more stimulus was “compelling and stronger than at the previous meeting” as there were “increasing signs that the threat of a disorderly resolution of the financial tensions in the euro area was affecting growth” in the UK. Nevertheless, it is noteworthy to say that the effect of the FLS is yet to be felt in the coming months and to that matter the minutes report “the committee could review this [interest rate cut] option again when the impact of the FLS and other policy initiatives was more readily apparent; that was unlikely to be for several months”. The MPC expected growth to be “roughly flat” in 2012 and inflation to fall modestly. Inflation for June was released yesterday, unexpectedly slowing to 2.4% down from 2.8% in May. At the same time of the release, UK’s unemployment rate fell to 8.1% from a consensus and prior 8.2%. Claimant count change however was less positive as the number of unemployed people in the UK dropped to 6.1K from the prior 6.9K. GBPUSD dropped 0.44% to reach an intraday low at 1.5594, and EURGBP shot up 0.29% before reverting lower to 0.7855. As for Spanish house price index, it decreased 8.30% y-o-y, lower than the expected 7.50% contraction. This drove the IBEX to trade 1.53% lower than the level it traded at around opening time. Today we expect US housing starts to come in at an improved 0.745 vs prior 0.708M (12:30 GMT), while market consensus for building permit is 0.765, lower than the last reading. Fed Chairman Bernanke will make his second round of testimony in front of the Congress, but we expect market response to be muted as Bernanke failed to give more precise information on the tools the Fed is considering in order to fight against unemployment and growth issues. At 15:15 GMT, BoC Governor Carney will be speaking to explain the reasons for which the central bank refrained from hiking the interest rate. 

Today's Key Issues (time in GMT):

2012-07-18T08:30:00 GBP MPC Meeting Minutes
2012-07-18T08:30:00 GBP Average Earnings Index +Bonus
2012-07-18T08:30:00 GBP Claimant Count Change
2012-07-18T09:00:00 CHF ZEW Expectations
2012-07-18T09:30:00 EUR German 2-Year Schatz Auction
2012-07-18T12:30:00 USD Housing Starts
2012-07-18T12:30:00 USD Building Permits
2012-07-18T14:00:00 USD Fed Chairman Bernanke Testifies
2012-07-18T14:30:00 CAD BoC Monetary Policy Report
2012-07-18T14:30:00 USD Crude Oil Inventories
2012-07-18T15:15:00 CAD BoC Gov Carney Speaks

The Risk Today:

EURUSD Bernanke's comments provided some short-term fireworks, but other then that not much is going on. After forming a long-legged doji candle Monday, and producing a long-tail on Tuesday, the market is clearly struggling to set a clear direction. EURUSD opened bid today peaking at 1.2306 but momentum has been fading. However, even should the bull get the upper hand, we suspect the pair will find solid resistance at 1.2336, the level under which it has held for the past seven trading sessions. Should the pair break the 1.2336 resistance, the first bids will be positioned at 1.2439 (Multiple support and resistance in June), 1.2685 (June 19th high & June 20th low), 1.2754 (June 20th high), 1.2826 (22nd May high), 1.2906 (support turned resistance), 1.3066 (8th May high), 1.3081 (gap high), 1.3122 (2nd May low), then 1.3179 (7th May pivot high). However, should bullish momentum fade, the first levels of support can be found at 1.2147/52 (29th June 10’ low), 1.2000 (psychological support) then 1.1862 (7th June low), and 1.1772 (30th Dec 05’ low).

GBPUSD The GBPUSD remains relatively resistance negative news suggesting a retest of 1.5662 resistance. The bullish reversal off 1.5390 support and subsequent aggressive break out of the asymmetrical triangle in formation since the start of June, gives the pair a firmly bullish tone. However, we need to close above 1.5662 to shift our bearish bias. The first zones of supply will be located at 1.5579 (11th July high), 1.5445 (hourly range high), 1.5405 (8th June low), 1.5374 (6th June low), 1.5321 (5th June low), then 1.5268 (13th Jan low). The next resistances lie 1.5663 / 78 (June 18th & 19th lows), 1.5785 (23rd May high), 1.5845 (22nd May high), 1.5954 (1st Mar pivot high).

USDJPY USDJPY’s downward drift outside the ascending triangle has reversed but there seem very little participation in the move. Bulls have been in control this week but we do not perceive a lot of upside for the pair, providing us confidence that 79.16 will cap any challenge. Should the bears push through demand at 77.60/77.67 this would be the trigger for a broader move to our 77.66 target. The next levels of resistance remain unchanged at 79.95 ( 22nd May & 23rd May highs), 80.21 (reversal), 80.62 (2nd May high), 81.60 (failed corrective rally), 82.56 (6th April high), 82.99 (3rd April high), trigger resistance at 83.40. Should USDJPY break below the June 6th pivot low and downtrend top, the next areas of supply will be lying at 78.00 (Psychological lvl), 77.66 (1st June low), 77.36 (13th Feb low) then 76.58 (3rd & 17th Jan low).

USDCHF USDCHF may have rallied impressively last week (hitting a high of 0.9873), but the move failing to break back above resistance (after multiple attempts) was a signal that the bulls were not strong enough to keep the upside momentum going. However, after this mild correction we suspect the bulls will mount a stronger challenge. The current trend remains bullish, so we anticipate the next leg for the pair will be higher. The first levels of support continue to be at 0.9738 (old resistance turned support), 0.9683 (June 4th pivot high), 0.9584 (5th July close, 6th July opening), 0.9419 (17th June low), 0.9369 (21st May Support), then 0.9183 (7th & 11th May low). The next resistances can be found at 0.9873 (13th July high), 0.9950 (13th Dec 10’ high), 1.0000 (psychological resistance), 1.0067 (1st Dec 11’ pivot high), 1.0149 (2010 pivot), then 1.0294 (10th Sept 10’ high).

Resistance and Support: