Plenty of CB action this week. All eyes on Iraq.

Aud, Kiwi both firm at the start of the week. RBA Minutes tomorrow.

The currency markets had a relatively quiet Friday, apart from Cable which rocketed higher after Mark Carney’s Mansion House speech suggested the possibility of an early BOE rate hike. Equities and Commodities were both firm, ahead of Wednesday’s FOMC decision. Ahead of that, it looks as though the market will be watching events unfold in Iraq. Today could be busy with the EU CPI to kick things off, followed by the US NY State Mfg Index, US Industrial Production, Capacity Utilisation & NAHB Housing Index.

EUR/USD: 1.3540

The Euro had a quiet end to the week consolidating above the solid bids in the 1.35oo-20 area but the price action was unable to head above the sizeable offers placed at 1.3580 and higher, and it is beginning to look as though we may be in for a stronger test of the downside in the days ahead.

Little has changed technically and although the short term charts are somewhat indecisive, the daily charts continue to point lower. The Fibo support at 1.3518 (38.2% of 1.2754/1.3995) will again find bids ahead of the post-ECB spike low at 1.3502, which should again be strong support. A break below 1.3500 would head towards the medium term target at the base of the rising wedge, at around 1.3440 (daily chart below), where we would be squaring up shorts and looking for a bounce, but think that this is unlikely to be seen today. A break of the wedge base would hint at a further move south towards 1.3370 (50% pivot % of 1.2754/1.3995) and then to 1.3294 (7 Nov ’13 low).

Above the 100 Hour MA at 1.3550, Fridays top at 1.3570/75 will be the immediate resistance, a break of which would advance to further minor resistance levels at 1.3590 where the 200 HMA may well contain it, but a break of which would head on to 1.3607 (61.8% of 1.3676/1.3502) and then on to 1.3630 (76.4%).

The EU CPI is due today (exp +0.5% yy, -0.1%mm) and if below expectations could have the Euro under some pressure. Once the US comes in, the Industrial Production, Capacity Ultilisation and the Housing Index will likely be the main focus.

I suspect that for the coming session we may be in for more chopping around current levels, although we may see a more rigorous test of 1.3520 but I would expect 1.3500 to hold again today. The consolidation may well continue for a couple of sessions, but at some stage I suspect that we are in for a test of levels sub 1.3500 and then possibly followed by a bounce later in the week if Janet Yellen retains here dovish stance, thus putting the dollar back under pressure.

Economic data highlights will include:

M: EU CPI, US NY State Mfg Index, TIC Flows, US Industrial Production, Capacity Utilisation, NAHB Housing Index

T: EU/German ZEW Economic Sentiment/Current Situation, US CPI

W: EU Construction Output, FOMC IR/Tapering Decision and Statement

T: Eurogroup Meeting, US Jobless Claims, Philly Fed Mfg Survey, CB Leading Indicator

F: EcoFin Meeting, EU Current Account, Consumer Confidence, German PPI

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EUR/USD: Daily

EurUsd; 4 Hour

USD/JPY: 102.03

The dollar was better bid on Friday, in following the Nikkei higher after the BOJ left rates unchanged and is therefore sticking fairly close to 102.00, within the confines of the 100/200 DMA’s and looking likely to remain so for the next couple of sessions, with plenty of hurdles to overcome on both sides of the market.

It initially needs to overcome Fridays high of 102.13, where it would run into further offers at the daily Tenkan at 102.20 and then at the 200 HMA/100 DMA at 102.30. The daily cloud base is at 102.44 while the cloud top is at 102.65, with the recent high being at 102.79, beyond which heavy offers are reportedly lined up at 103.00/10.

On the downside, the daily Kijun is at 101.80 which comes ahead of Friday’s low of 101.65 and the 200 DMA at 101.55.

I don’t think we should expect too much at all today, and given that the daily indicators are completely flat, probably for the next few days but the 4 hour charts are pointing mildly higher, so if anything we might get a bit of a squeeze up towards the cloud. Sidelined.

EURJPY: 138.15 The cross has broken down below the 200 DMA (138.65) and looks as though it may be headed for the 4 Feb low at 136.22. That is some way off though and if we do head lower progress would most likely be be slow and choppy. If the 200 DMA can be regained then we could be in for another squeeze back to 140.00, but this looks a bit unlikely right now. Sidelined

GBPJPY: 173.10 The cross is back at the top end of its range but has yet to reach the 2 Jan 174.83 high. With the indicators being pretty flat and having been in a 169.50/173.50 range now since early April, we can probably expect more of the same, and in the short term 172.50/173.50 may have it covered. Further downside support would come in between 171/172 where the choppy congestion has recently supported the cross. Sidelined.

AUDJPY: 95.90. The cross is consolidating at the top end of the 95.00/96.00 range and it looks as though this could continue, at least in the short term. The dailies are picking up some mild positive momentum, so I prefer to be a buyer into dips towards 95.25/50, looking for an eventual break of last week’s 96.15 high to head towards 96.50 (4 April high). Above there could see a slow grind up towards 97.00/50, and given the yield advantage, it pays to play it from the long side. Back below 95.00 would surprise, but would head towards 94.65 and possibly to the rising trend support at 94.25. As long as we stay above here, I would favour buying dips. A break though would see stops triggered, taking the cross back towards the 100 DMA at 93.70 and possibly to the 200 DMA at 93.30.

Economic data highlights will include:

M: BOJ Monthly Economic Survey

W: BOJ Minutes, Trade Balance

T: Industry Activity Index, Leading Economic Index, Coincident Index

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USD/JPY: Daily

GBP/USD: 1.6965

Cable was the stand out performer on Friday after Mark Carney suggested that rates may rise sooner than previously envisaged and the market is now pricing in a 75% chance of a rate hike by the end of this year. For its part, Cable rose sharply to a high of 1.6991 where it ran out of steam ahead of 1.7000 option barrier.

There is a fair bit of UK data out this week, starting today with the BOE Quarterly Bulletin and so Cable is likely to remain at the forefront of the action. There will continue to be heavy protection of 1.7000 but there will be heavy stops triggered once it is taken out which would lead Cable towards the 2009 high at 1.7041. Beyond there, there is not a great deal to stop Cable heading to the August 2008 high which is not to be seen until 1.7516, so it could be a wild ride if/when it does decide to carry on.

The top of the monthly cloud is at the current level and will not give way easily, and with the 4 hour charts now overbought we may need a session or two of consolidation. Dips will see bids at 1.6920 and then at 1.6900 and I would be surprised to see Cable much below here in the short term. If wrong, further bids would be seen at 1.6880 and at 1.6840, where the top of the daily cloud, the daily Tenkan and Kijun all coincide and should therefore be very strong.

While Cable is looking strong, particularly against the Dollar and the Euro, it is not really showing any signs of breaking out against the other crosses, including the Jpy, Aud, Cad and Kiwi. Thus, I suspect that while we are close enough to trigger levels above 1.7000, the good news is now in the market and I am a bit sceptical as to whether it will have the strength to carry on to higher ground. Therefore, assuming that 1.7000 eventually does crack, looking to sell Sterling as we approach the 2009 high at 1.7041 may not be a bad trade, with a stop loss placed suitably, somewhere up near 1.7100.

Economic data highlights will include:

M: BOE Quarterly Bulletin

T: UK CPI, PPI, RPI

W: BOE Minutes

T: UK Retail Sales

F: PSNBR (May)

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GBP/USD: Daily

GbpUsd; Weekly

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EURGBP: 0.7974 The cross has now taken out 0.8000, and given the divergent BOE/ECB monetary policy outlooks should keep EUR/GBP bias heading lower, with 0.7756, July 2012 low and 0.7500 the major bear targets. Immediate support will be seen at the 8 Nov 2012 low at 7960 and then at 0.7922 (26 Sep ’12 low). Below 0.7900 further bids would arrive at 0.7812 (16 Aug ’12 low). This is a heavily one sided trade though, so the odd clearout of shorts is inevitable and we could see a run back above 0.8000 towards the first minor Fibo resistance at 0.8070 and maybe to 0.8100. I don’t really see it happening, but if wrong, I think it would be a good selling opportunity.

EurGbp; Weekly

USD/CHF: 0.8995

US$Chf traded in a narrow 0.8960/0.9010 range on Friday as it chops around either side of the 200DMA, and it looks as though it could be rather similar today.

Nearby support is seen at the 100 HMA at 0.8990, below which would head back to the 200 HMA and minor rising trend support at around 0.8960. Below here would see a run towards 0.8940 (minor) and then to the recent 0.8908 low. I don’t see it below here in the near term, but if wrong, look for further losses towards 0.8880 where the 100 DMA would provide support.

On the topside, 0.9010 will again act as near term resistance beyond which would take the dollar on towards the recent ECB inspired spike high of 0.9036 and then on towards 0.9050. It may eventually attempt a more concerted test of 0.9100 above which the top of the descending wedge is at 0.9125 which, if/when seen should be very strong resistance.

For today, once again use something like 0.8970/0.9020 as a guide, with a preference to trading it from the long side.

Economic data highlights will include:

W: SEW Survey

T: SNB IR Decision/Statement

F: Swiss Trade Balance

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USD/CHF: Daily

AUD/USD: 0.9400

The Aud saw a low of 0.9376 on Friday, pressured by higher US yields, but as these gave up some of their ground the Aud squeezed back to close the week at 0.9400.

For the time being, playing the Aud from the long side still appears to be the way to go, although with the RBA currently sitting on its hands, a more positive tone from Janet Yellen at Wednesday’s FOMC meeting would see US yields rally once again, narrowing spreads and putting some more downside pressure on the Aud. We shall have to wait and see.

There is little out on Monday and so it could be a relatively steady session, but things will warm up on Tuesday when we get RBA speeches from both Kent and Stevens, which come ahead of Thursdays RBA Bulletin.

The dailies are positive, and on the topside Thursday’s high at 0.9438 will be the first target. Stops will be triggered beyond there which would propel the Aud towards the 10 April high at 0.9460, above which would suggest an attempt on 0.9500 (0.9495: 76.4% of 0.9757/0.8660). Above here there would be little to stop the Aud heading towards the 6 June high at 0.9543 and beyond that to the long term objective off head/shoulder reversal now at 0.9660, although there is plenty of work to be done ahead of that.

The initial support is a Friday’s low at 0.9375 and below there, further support comes in at 0.9365 and at 0.9350. Back below 0.9340 would signal a false upside break of the descending trend resistance – now support – and would hint at a deeper run back towards 0.9300 although this looks unlikely for now.

While I remain bullish and would be looking to buy dips still, some caution is warranted, and I would be keeping stops fairly tight under 0.9340, but not really looking for too much volatility for the coming session.

As we have said before, keep an eye on the Iron Ore Price. It has now fallen from around $115 per tonne in April to $90 p.t., with some analysts suggesting that $70 could be on the cards. That being the case, the Aud is going to find it very hard to maintain its current levels and the ASX won’t be at 5400 either.

Economic data highlights will include:

T: RBA Kent Speech, New Vehicle Sales, RBA Minutes, China FDI, RBA Stevens Speech

W: CB Leading Indicator, WBC Leading Index, China House Price Index

T: RBA Bulletin

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AUD/USD: Daily

EURAUD: 1.4400. The cross recovered from the week’s lows at 1.4358 but still looks heavy and I suspect will eventually reach out long term Head/Shoulder target at around 1.4155. Back above 1.4475 would trigger stops and could potentially see a reversal towards Fibo resistance at 1.4510, possibly 1.4590, but if seen would, I think, be a sell opportunity while the dailies/weeklies still point lower. Keep an eye on today’s EU CPI. A reading of sub 0.5% would have the markets concerned about further action from the ECB and would have the cross under pressure, underpinning the Aud.

EurAud: Daily

GBPAUD: 1.8040. The cross has reversed sharply higher following Mark Carney’s indication of higher UK rates in the months ahead, and in the short term appears to have the chance of moving up towards the descending trend resistance at around 1.8150 and possibly to the 100 DMA at 1.8230. It is feasible (although doubtful) that we could eventually return to the 21 May high at 1.8322, but which if seen would I think probably be a decent selling opportunity. Overall though it looks as though it could be a choppy week and I would not care to put too much on it in either direction. If it fails up here, then we can expect a return, back below 1.8000, towards 1.7905 where the 200 DMA will provide support. I suspect using the 100/200 DMA’s as a guide to the trading parameters for the next few days may be the way to go.

GbpAud; Daily

NZDUSD: 0.8660

The Kiwi is consolidating its gains following Thursday’s rate hike and dips look to be somewhat limited in the sessions ahead given that there is a growing expectation of another hike at the next meeting on 24 July.

While the dailies are hinting at further gains to come, the 4 hour charts are busy unwinding their overbought condition and so I don’t think we should expect too much today. More likely, I think the Kiwi could well wait for the FOMC on Wednesday and the NZ GDP, which follows shortly afterwards, (Thursday morning NZ time) for anything directional.

If we do see a bit of a downside correction, the points to watch are 0.8630 (minor) and 0.8590 (100HMA). Stronger support comes in at 0.8585 (38.2% of 0.8401/0.8699), although it does not look likely to be bothered in the near term.

On the topside, 0.8675 will be minor resistance ahead of last week’s 0.8699 high. Above 0.8700, would hint at a test of the years highs at 0.8778 (6 May) and maybe even the 2013 high at 0.8842 but this too is some way off and I would be surprised to see it above 0.8700 today.

For today look for 0.8630/80 to cover it, with a view to buying dips, but with a SL placed sub 0.8580.

Economic data highlights will include:

W: NA Current Account, China House Price Index

T: NZ GDP

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NZD/USD: Daily

DXY: 80.61

The DXY has now had 6 higher weekly closes in a row but still cannot manage a convincing Friday finish above the 80.60 pivot, and in the short term at least, looks rather undecided which way it will head from here.

Having finished the week at 80.61, the daily MACD’s appear to be rolling over and may drift a bit lower, keeping the dollar under a bit of pressure for the next couple of days. If so, the support levels to watch are at the previous week’s close at 80.42, and the index now really needs to stay above the 200 DMA at 80.33 or we are in for a more concerted test of 80.13 (100 DMA) and then 80.00, below which would potentially head back towards the 200 WMA at 79.60.

On the topside however, the weekly indicators still look strongly positive and if we can maintain the positive momentum of higher weekly closes, then we could eventually head back to 80.97 (100 WMA) and to the recent 81.02 high, above which would hint at a run towards the 38.2% Fibo resistance (84.76/78.89) at 81.13 which is likely to be strong. If it can be taken out the next point to watch would be at 81.48 the Nov 2013 high.

For the next couple of sessions it looks as though we could be in for a bit of a sideways drift but given the way that the weeklies look, buying dips in the dollar still appears to be the strategy.

DXY Daily