ECB on everybody's mind

Forex News and Events:

At a time where markets disregard political action and statements, investors turn their heads and hopes towards the ECB, holding their breaths for further guidance. The ECB’s governing council will be meeting tomorrow to discuss Mario Draghi’s bond-buying proposal. The central bank’s President Announced on August 2nd that the ECB would intervene in secondary markets to buy sovereign bonds from peripheral Europe in order to prevent the countries from suffering from a liquidity squeeze. The initiative although still half-baked if not at all, was highly scrutinized and sometimes criticized. The most fervent opposition to the idea came from Bundesbank President who admitted to the Bild he had thought of quitting his position, and the bank’s monthly report where it was mentioned that intervening in bond markets constituted a higher balance sheet to be taken on by the ECB. The EUR held strong, advancing against 6 of its G10 counterparts, the most against the AUD, NZD and the regional peer, the SEK. During tomorrow’s monthly meeting of the ECB, every single word uttered by Draghi will be heavily weighed and might cause a 60 pip reaction all over. Draghi is expected to speak about the central bank’s new ClubMed bond-buying program and whatever he will or won’t say will have a big impact on market sentiment. From the comments leaked yesterday by a French member of the EU parliament, Draghi seems to be comfortable with buying 2 or 3 year maturity bonds. The news drove Spanish and Italian 2-year yields drop approximately 25 and 45 basis points. In a follow up of yesterday’s piece on the Swiss economy, the release of Swiss CPI did provide the SNB with a smidgen of breathing room for the SNB. CPI m/m climbed to 0.0% from a prior read of -0.5% while y/y came in at -0.5% vs. -0.7% prior (slightly above exp). As anticipated, deflation looks to have bottomed in Q2 and is now gently trending higher. Yet while price pressures are moving in the right direction, deflationary concerns have clearly not disappeared. Pressure on the EURCHF “floor” policy might ease marginally, yet this data will not be the element that would make the SNB shifts it stance. With slowing exports so pronounced in yesterday’s data and risk emulating for Europe we don’t expects and change in policy or ratcheting down of protective rhetoric. As expected the effect on EURCHF and USDCHF was muted. Trading will be tame and range bound ahead of tomorrow critical ECB meeting. 

Today's Key Issues (time in GMT):

2012-09-05T01:30:00 CHF AUD AU GDP
2012-09-05T07:15:00 EUR CH CPI
2012-09-05T09:00:00 CAD EU Retail Sales
2012-09-05T13:00:00 CA Interest Rate Decision

The Risk Today:

EURUSD EURUSD has fallen back from its 1.2627 highs yesterday, leaving us hovering around 1.2540 levels (mid 1.2463 to 1.2641 range). As for today the event risk built around tomorrow ECB meeting should keep directional price action contained. In the mid-term, the uptrend channel that has been in play for almost 2-months is keeping us supported. We are still looking for a solid close above 1.2593 to trigger an extension rally to 1.2754. The first levels of resistance remain at 1.2568 (100d MA), 1.2641 (28th Aug high), 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). Next levels of supply located at 1.2463 (31st Aug low), 1.2386 (14th & 17th Aug high), 1.2241 (10th Aug low), 1.2160 (13th July low), 1.2046 (25th July low), 1.2000 (psychological support) then 1.1870 (7th June low).

GBPUSD GBPUSD bulls tried to push the price back up through 1.5918 resistance yesterday, but only got as far as 1.5909 before they ran out of momentum – leaving the price to slip back to 1.5826 this morning. We retain our bullish bias as the pair remains comfortably above 1.5750/70 (18d & 100d MA) supply range, and is still a way off the uptrend support. The supply zone is located at 1.5790 (18d MA), 1.5745 (100d MA), 1.5665 (uptrend channel floor), 1.5564 (8th Aug low), 1.5656 (intraday low),1.5458 (26th July low), 1.5405 (8th June low), 1.5390 (6th June low), then 1.5266 (13th Jan low). The next solid resistances is located at 1.5918 (27th Aug high), 1.6002 (16th May high), 1.6143 (20th April & 11th May high).

USDJPY USDJPY has been marginally fanned higher by the recent uptick in risk sentiment, taking us to highs of 78.54 this morning but remains a far distance from range resistance at 78.84. The pair has receded lower at the start of this week, sustaining our mildly bearish bias but not damaging any important levels. The next areas of supply will be lying at 78.15 (6th, 7th, 10th and 13th Aug low), 77.90 (1st Aug July low), 77.66 (1st June low), 77.36 (13th Feb low) then 76.58 (3rd & 17th Jan low). The next levels of resistance remain at 79.67 (20th Aug high), 80.11 (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.

USDCHF USDCHF has spent the last 24-hours rallying to 0.9606 levels, but as long as the 2-month downtrend channel can stay intact in the coming sessions, we expect the pair’s next move to be lower (although not a confident was we were yesterday). If the bears can regain control, we could therefore be on course for a return to 0.9410/20 levels. The first levels of support should be located at 0.9504 (30th Aug low), 0.9417 (17th June low), 0.9369 (21st May Support), then 0.9183 (7th & 11th May low). The next levels of resistance are located at 0.9661 (22nd Aug high), 0.9810 (10th Aug high & uptrend channel), 0.9900 (2nd Aug high), 1.0000 (psychological resistance), 1.0070 (1st Dec 11’ pivot high), 1.0149 (2010 pivot), then 1.0294 (10th Sept 10’ high).

Resistance and Support: