A wild ride on all fronts heading into today's EU/US CPI, FOMC decision.

It has been an extremely hectic session, led by some serious volatility in the Yen (and the Russian Rouble), with the Dollar initially seeing a general sell-off, before a partial recovery later in the day. Commodities were also extremely volatile and included another selloff, to a new trend low in the oil price before a sharp $3 bounce. Focus will now turn towards today’s FOMC meeting, although before then we get to see the EU & US CPI figures, while from the UK, the BOE Minutes and Unemployment data. Liquidity is getting thinner by the day, so it could become even more choppy later on. Keep stops tight!

EUR/USD: 1.2491

The dollar came under some heavy pressure today, led by the steep fall in US$Jpy, but with the Euro assisted by the EZ data, where the German ZEW economic sentiment rose sharply to 34.9 (exp. 20.0) and the current situation gauge also improved to 10 (exp 5). EZ  ZEW economic sentiment rose strongly to 31.8 ( exp 19.8) .The German flash Mfg PMI also improved to 51.2 (exp 50.3), while the French number again disappointed at 47.9 (exp 48.6).

Currently sitting close to 1.2500, after earlier seeing a sharp squeeze up to as high as 1.2569, the market will now look towards the EU CPI (exp 0.3%yy, -0.2% mm) and then to the US  CPI (exp -0.1%mm, +1.4%yy) for guidance, to be closely followed by the Fed and the FOMC result, which seems very finely balanced as to what the outcome will be. The main focus will be on the statement and whether the phrase “considerable time” will continue to be used as to how long rates are likely to stay on hold.

Technically, the Euro has broken above the descending trendline that we have recently discussed and has headed on towards the resistance at the pink descending trend resistance line, now at 1.2570. The dailies still point higher though, so if this can be overcome, then look for a run up to the 19 Nov high at 1.2490.   A break of 1.2500 would  trigger stops to potentially take the Euro on towards the 26 Nov high at 1.2531, above which, the first major Fibo resistance is not seen until we reach 1.2590 (23.6% of 1.3699/1.2246), with the greater Fibo level not seen until 1.2656 (23.6% of 1.3993/1.2246).

If the Fed turns out to be more hawkish than expected, then the dollar will come back into favour, with the Euro back under pressure, where the downside will see bids at minor rising trend support/100 HMA at 1.2450, a break of which would head to the 200 HMA at 1.2400. Below here would see a run towards minor Fibo support s at 1.2375 and 1.2325 ahead of 1.2300, below which would head back to the trend low at 1.2246 which in turn lies just ahead of the next major level at 1.2225 (200 Month MA) and will act as strong support.

If/when the 200 MMA is taken out, the Euro would then head towards  the major rising trend support (joining the 2005, 2010, 2012 lows) at around 1.2140, and then to 1.2100 which is the 50% pivot of the rally from the Euro Oct 2000 low to the July 2008 high and again, should also provide decent support. Under that, which would see the long term head/shoulder neckline being broken, we have the July 2012 low at 1.2041 and the June 2010 low 1.1876, which both come ahead of 1.1743, where the Euro was initially pegged to the dollar in January 1999.

Economic data highlights will include:

EU CPI, US CPI, Current Account, FOMC Meeting/Press Conference/Statement..

Meta Trader – AxiTrader   EUR/USD: 4 Hour

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USD/JPY: 116.35

US$Jpy has had a highly volatile session today, which is continuing into early Asian trade. The dollar  took a beating in early Europe, and once 117.00 support had given gave way, a sharp selloff to a low of 115.55  ensued, on the back of stops being triggered and position squaring of large yen short positions as well as another selloff in the oil price. The action has since reversed equally sharply and the dollar has since rallied to as high as 117.75 before settling the US session at 117.30, pretty much where it was this time yesterday, but after having left plenty of blood on the street. Early Asian trading has taken the dollar lower once more, currently sitting at 116.35.

It is going to remain very choppy as we await for the FOMC result but I would pretty much expect 116.00/117.00 to cover it until then, but the points to watch are at:

On the topside; 117.75/118.00 (117.93: 38.2%of 121.84/115.55) will be the immediate resistances. Above here would head on towards descending trend resistance/100 HMA at around 118.20, a break of which would head on towards 119.00 (200 HM) with further minor resistances to be seen at 119.45 (61.8%) and 120.30 (76.4%).

On the downside, minor support will arrive at 116.00 ahead of today’s session low at 115.55. A break of 115.50 (38.2% of 105.18/121.84) would see a deeper selloff with the points to watch being at 114.87 (12 Dec low) and 113.85 (10 Nov low).

Wait for the Fed, but if they are hawkish and set off another run to the topside in the dollar, then in the longer term I still expect it to eventually recover and to head back towards the recent trend high at 121.84. Beyond there would continue towards the 15 July 2007 high at 122.42. In the longer term, the target of 124.13 (17 June 2007 high) will then appear on the horizon, but will take time, given the resistance levels sitting in between..

Economic data highlights will include:

Trade Balance.

Meta Trader – AxiTrader   USD/JPY: 1 Hour

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GBP/USD: 1.5725

After heading back to the base of the recent 1.5600/1.5750 range in early UK trade on the back of the weak UK Nov CPI (-0.3%mm vs exp 0.0%), reaching a low of 1.5610, Cable turned sharply higher, badly squeezing the shorts after BOE Governor spoke, when he said that the fall in oil prices is “unambiguously a net positive for UK”. We have so far been up to 1.5785 before coming back to sit within the parameters of the recent range, currently at 1.5735, although the daily charts do suggest that it could again be the upside that comes under pressure later in the day, with the FOMC being the main focus, but before which we will get the BOE Minutes and the UK unemployment rate, neither of which are expected to cause any major surprise.

Technically, the descending trend resistance is under heavy pressure, and a break of today’s top at 1.5785 would hint at a run towards 1.5800 and possibly to 1.5826 (27 Nov high). Beyond this, would see a further acceleration towards 1.5925 (23.6% of 1.7191/1.5540) and possibly even to 1.6000.

On the downside, back below 1.5700 (100 HMA) would find bids within the range at 1.5670 (200 HMA) and then again at the session low at 1.5610. Below 1.5600 would see a run towards 1.5582 (1 Dec low) and then to the recent trend low at 1.5562 (8 Dec low). Further out, minor support will arrive at 1.5500 and at 1.5426 (Aug 2103 low), below which the 50% pivot of the whole rally from 1.3502/1.7191 at 1.5350 will be a longer term target.

Economic data highlights will include:

BOE Minutes, Unemployment.

Meta Trader – AxiTrader   GBP/USD: 4 Hour

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USD/CHF: 0.9612

US$Chf finally broke the rising trend support and headed sharply south to 0.9552 , where it perfectly reached the Fibo support (23.6% of 0.8702/0.9817), before a bounce that has taken it back to 0.9620.

The shorter term charts are looking a bit more positive and we could see a continuation of this bounce to take us up towards the 100 HMA at 0.9650, a break of which would take us back above the previous trends support-now-resistance, for the chance of another run to 0.9600 and eventually to the 200 HMA, currently at 0.9700.

The downside will again see bids at 0.9550, a break of which would head towards the Nov 19 low at 0.9529 and then on to 0.9500.

For the time being a choppy session using 0.9600 as a pivot looks likely, at least until the EU CPI. Watch out too for the SNB Quarterly Bulletin.

Economic data highlights will include:

SNB Quarterly Bulletin, ZEW.

Meta Trader – AxiTrader   USD/CHF: 4 Hour

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AUD/USD: 0.8206

The Aud has been choppy today, but largely rangebound, as the consolidation above 0.8200 continues. It did manage an intraday squeeze up to 0.8275 in Europe before succumbing to the sellers and is now back sitting precariously above 0.8200.

With yield spreads continuing to narrow, it seems likely that the Aud will eventually head lower,  and if  the Aud does head below 0.8200, this would potentially see an acceleration lower, towards a wave equality target at 0.8145 (AB=CD; from 0.9398 to 0.8642, from 0.8901; see daily chart, below), beneath which there is little to hold the Aud up until the May 2010 lows at 0.8066.

On the topside, 0.8255 (100 HMA) and the session high of 0.8275, and also now the descending trend resistance will be the initial hurdles. A break of this could result in a squeeze higher, towards 0.8300, a break of which  would head on towards 0.8315 (daily Tenkan) and 0.8338 (23.6% of 0.8795/0.8200) and then to last week’s peak at 0.8375, beyond which would take a run towards 0.8400, and which if seen would be a good medium term sell, I suspect.

Selling into strength still seems the way to go, possibly for a quick run lower if the stops below 0.8200 are triggered.

Economic data highlights will include:

China FDI.

Meta Trader – AxiTrader   AUD/USD: 4 Hour

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NZD/USD: 0.7776

The 200 HMA held the Kiwi up early in the session, and a general shift out of the US$, led by the move in the Yen, allowed the Kiwi to reach up to a high of 0.7848 with the rally also assisted by an improved Fonterra Milk Auction (GDT Index +2.4% but volume down by 10%). The gains were short-lived though, and as the US$ again found its feet, the Kiwi has returned to the middle of the day’s range, where it currently sits right on the 100 HMA at 0.7780.

The choppy price action seems set to continue, largely within the 0.7700/0.7850 range, with the momentum indicators looking rather mixed and showing little directional bias.

On the topside, above 0.7850, we could see a run to 0.7900 but I am not sure that it goes much higher than that, while on the downside, below today’s 0.7720 low would find bids at 0.7700. A break of this would then head to 0.7660 (7 Nov low), with further minor support seen at 0.7635 and then at the trend low at 0.7606, although I don’t think we are heading there yet.

Economic data highlights will include:

NZ Current Account, WBC Leading Index.

Meta Trader – AxiTrader   NZD/USD: 4 Hour