JPY Crosses Overbought, CHF Strong

Forex News and Events:

The FX markets made a risk-on start to the week, yet traders should be aware that the event risk is high. As the global uncertainties on leading central banks’ policy outlooks remain, any comment/view carries the risk of a short squeeze as seen in the morning. Amid the ECB Governing Council member Hansson said that ECB stands ready to further cut the borrowing costs and is technically ready for negative deposit rates, EURUSD sold-off to 50 hour-moving average (1.3510). Versus JPY, EUR advanced to fresh highs. JPY-technicals are now warning that USDJPY and EURJPY should see some downside correction. In Switzerland, CHF enters the bearish consolidation zone.

JPY Crosses Overbought

In Japan, week’s key data is the inflation figures to be released on Friday. While the market expectations are skewed positively, MoF’s Furusawa stated that the deflation is coming to an end. According to CFTC Nov 19th data, the net speculative JPY-shorts reached the highest since 2007.

The heavy JPY sell-offs lifted EURJPY and USDJPY at the overbought areas, suggesting that a correction is seen healthy at these levels. EURJPY eased from 137.99 today, and we expect a deeper correction below the upper BB (136.91). While the broader bias remains on the upside, we believe that 139.22 (2009 highs) should be a solid resistance, before the way is open for 140.96/141.00 (Fibonacci 38.2% on 2008/2012 drop).

USDJPY kick-started the week, cleared resistance at 101.50 and rallied on stops to 101.92. Technically, the pair is considered as overbought (with RSI at 73%) despite JPY-bears gaining momentum. Option barriers are seen at 102.00/25 then 102.85, above which we eye the year-high of 103.74. We will be chasing dip buying opportunities ahead of CPI reading due on Friday.

Swissy: Strong

USDCHF extends the downtrend channel building since October 7th, bringing us to bearish consolidation zone this Monday. The short-run resistances are seen at 0.9110/13 (61.8% on Oct-Nov upside correction / 21 dma), while more offers are seen at 0.9180 (uptrend channel top), 0.9205 (100 dma).

Moving forward, the likeliness of stronger CHF prevails as the global uncertainty favors the safe-haven franc. With the fading inflation however, the SNB frequently reminds that it will continue fighting against strong CHF. Regarding EURCHF, we have no doubt that SNB will successfully defend the 1.20 floor, yet the upside is seen limited at the downtrend channel top (1.2350) building since the past six months.

DXY under pressure

November 19th CFTC data shows that the USD-longs kept on building, yet at a slower pace over the past week. The speculations on Fed tapering/not tapering keep the volatility high in the financial markets, the S&P 500 stocks closed the week at a fresh historical high in New York on Friday. The US treasury yield curve further steepened.

DXY picked up from 80.50-fibo support as FOMC October meeting minutes showed discussions in favor of Fed tapering, although no details have been heard on when and how. The weakness in DXY is to dissipate for a close above 80.72, according to MACD indicator which should rebound in the positive territories for a daily close above this level. Besides the technicals, traders should keep in mind that the event risk is high. And given the high levels of uncertainties, any comment/view from Fed officials is likely to trigger price action in one way or the other.

Today's Key Issues (time in GMT):

2013-11-25T15:00:00 USD Oct Pending Home Sales m/m, exp. 1.1%, last -5.6%
2013-11-25T15:00:00 USD Oct Pending Home Sales y/y, last 1.1%
2013-11-25T15:30:00 USD Nov Dallas Fed Manf. Activity, exp. 5.0, last 3.6

The Risk Today:

EURUSD has rallied aggressively to 1.3563 placing the markets focus on 1.3585 barrier. A break above should trigger the extension of strength to 1.3646. Should the bulls fail to gain the need momentum with the MACD under the zeroline and RSI pointing lower in now seems the bears are still in control. We retain our bearish target at 1.3299. The next support can be found at 1.3421 (Fibo 61.8% on Jul-Oct rally), 1.3361 (100 dma), 1.3295 / 99 (7th Nov low), 1.3106 (6th Sept low), 1.2995 (10th July reaction high), 1.2963 (11th July low), 1.2877 (Fibonacci 50% retracement on Jul 12’ – Feb 13’ rally), then 1.2820 (20th May low). The first region of resistance is located at 1.3585 (20th Nov high), 1.3625 (fibo from Oct/Nov sell-off), 1.3646 (3rd Oct high), 1.3830/35 then a distant 1.4248 (Oct’ 11 high).

GBPUSD has rallied above key resistance at 1.6125 peaking at 1.6249. MACD is now stabilizing above the zeroline and clearance of supply at 1.6125 should provide potential for further bullish rally, with our focus on 1.6260. On the downside the 21-DMA at 1.6075 should provide support to the current sell-off. Watch for next resistance to come into play at 1.6270 (1st Oct high) then 1.6343 (2013 high). The support levels from here are 1.6075 (21- DMA), 1.6045 (downtrend top), 1.5884 (13th Sep high), 1.5759 (17th June high), 1.5708 (fibo 61.8% on Jul-Oct rally), 1.5600 (resistance turned support) then 1.5429 (28th Aug low).

USDJPY has rallied to 101.93 (easily taking our target at 101.68), as the Nikkei 225 extends gains triggering broad JPY weakness. With trend and momentum indicators solidly positive, we remain constructive on USDJPY and will adjust our expectations for a challenge to 102.61. Although with short term indictors (RSI & Stochastic) are overbought we might see a marginal correction before a resumption of strength. The first resistance region is located at 101.50/68 (8th July high & Fibo lvl), 102.53 (29th May high),103.55 (16th Sep 08 & 30th Sep 08 low), then 105.00 (psychological resistance). On the downside, supports are located at 99.10 (13th Nov low), 98.59 (Ichimoku cloud top), 97.50 (triangle support), 96.56 (8th Oct pivot low), 95.83 (6th June low), 93.57 (Fibonacci 61.8% on Sept 12’ – May 13’ rally), 92.56 (2th Mar low & Fibo 38.2% retracement), 90.93 (25th Feb low).

USDCHF Last week USDCHF’s bullish rally faltered before triggering bull flag pattern, and resulting sell-off sent the pair down to 0.9105. The pair failed to resume it bullish correction as we had anticipated, instead has violated support at 0.9080. With MACD still above the zeroline and need a solid close below supply to shift our bullish bias. Although remain cautions at these levels. The first levels of support remains at 0.9080 (23rd Sep low), 0.8970 (1st Oct reaction low), 0.8934 (24th Feb low),0.8891 (24th Oct low), then 0.8860 (Fibo 38% Aug 2011 to July 2012 retracement level). The next levels of resistance are located at 0.9205 (100-DMA), 0.9280 (17th Sept pivot), 0.9320 (200-DMA), 0.9450 (target), 0.9481 (range top), 0.9568 (fibo 61.8% on May-June drop), 0.9598 (11th July high), 0.9626 (31st May low & 3rd June low) then 0.9672 (fibo76.4% level on May – June drop).

Resistance and Support: