Forex News And Events:
Fundamentals have clearly taken the back seat to fable mongering and inflated headlines this morning. The hot-cold risk-appetite trades have picked up a schizophrenia-like pattern and Forex has yet to develop a sustainable trend across any major pair. We are still seeing a level of divergence between treasuries, stocks and commodities which hasn’t assisted in providing some much needed clarity.
With the anxiety surrounding yesterday’s EU data, the market braced itself for an end-of-days scenario only to quickly breathe a sigh of relief. Irish and Spanish debt auctions went off without a hitch with rates only slightly higher than prior auctions. The USD broadly sold off as a result and sovereign EU spreads had already begun to tighten before the auctions concluded but the good news aided the rebound. The positive news from two PIIGS was able to offset the negative German ZEW figure which came in significantly lower than expected. The indicator which measures investor confidence in the Germany economy fell 7.2 points to 14.0, coming in 6 points below consensus.
Risk seekers have decided not to trade through the Asian session and pundits were quick to point their collective finger at 2-tier soft US Housing Starts and home building permit data. In an interesting turn of events, Minneapolis Fed President Kocherlakota stated that the FOMC decision to reinvest the proceeds of maturing MBSs (mortgage-backed securities) into Treasuries and not use the proceeds to write down their balance sheet was motivated by the need to limit mortgage prepayment risk and was not a reflection of the Fed view on the recovery. He then went on to say that speculation by economists surrounding the Feds motivations were "unwarranted," and that "there is no new information about the current state of the economy to be learned from the FOMC's actions or its statement." Either way, it’s naïve for the Fed to ask markets not to read into their actions and the clarification is a too little, too late.
Rhetoric continues to stream out from Japanese policy makers, but each statement has a lesser impact on the market than the previous. The dwindling effect led DPJ lawmaker Kaneko to demand FX intervention but recognize that without a coalition, any action by Japan would have only limited effect. He further asserted that "intervention is necessary to show that the government cannot and will not accept the current level." If Japans policy makers are truly interested in moving the JPY, verbal intervention has all but exhausted its utility. It’s time to move onto “BoJ-driven” solutions if they want results.
Today’s economic calendar will be a light summer day with the only data byte of interest being the BoE’s MPC minutes being published. EU construction will be released as well, but will be a non-market mover. For the BoE minutes, the market is broadly anticipating an 8-1 vote keeping policy unchanged. Andrew Sentance is expected to be the lone dissenter, again. The inflation report kind of took the wind out of today’s minutes by downgrading their the BoE’s previous growth forecast and suggesting that they were only slightly concerned with inflation levels.
The sterling has been under pressure this morning as traders are anticipating that today’s minutes may indicate the a further QE measures by the central bank. Given the Fed’s shift to diet QE, it’s logical to suspect the BoE may go in the same direction. We are short GBPUSD for the day.
Today's Key Issues (Time In GMT):
08:30 GBP BoE MPC minutes, vote Aug 8-1 exp, 7-1 prior09:00 EUR Construction output % m/m (y/y) -1.0 (-6.3)
The Risk Today:
EurUsd We seem to be stuck in a risk-on/risk-off environment this week, so the move through the top of this week’s short-term downtrend has not had a chance to gather momentum for a sustained moved higher, instead slumping back towards 1.2830 levels. The back side of the former downtrend is now seen at 1.2805 so we expect bidders to step in on a re-test, but as we have discussed before, the more important trendline support to watch is the2-month uptrend at 1.2750. Should that 1.2750 level give way then stops are likely to be clustered behind. Next targets on the downside come in at 1.2683 (14 Jul low), 1.2605 (50% fibonacci level) and 1.2522 (13 Jul low). Should the bulls step in back at the short-term downtrend and drive the pair back higher, the first key resistance remains 1.2930 (12 Aug high). That ceiling will probably be robust enough to withstand most rallies (having scuppered 3 attempts already), and it is backed up by further resistance at 1.2990 (23.6% fibonacci retracement of 1.1876 –1.3333).
GbpUsd GBPUSD is looking very sickly at the moment, even before the BoE minutes hits the wires. The break above short-term downtrend resistance earlier in the week now looks like a false dawn, as the bears have managed to beat a path through the major support zone 1.5535-55 (16 Aug low and 50.0% fibonacci retracement of 1.6878 –1.4229). With the 2-month uptrend broken long ago (start of last week), the outlook is precariously bearish. Next supports are eyed at 1.5493 (200-day moving average) and 1.5440 (27 Jul low) and the old pivot level 1.5350. The bulls will need something special (perhaps a second dissenter in the BoE minutes) to break higher, but barring that, the topside is looking very ominous with resistance at 1.5715 (12 Aug high), 1.5800 (psychological resistance), 1.5820 (11 Aug relief rally peak), 1.5835 (back side of former 2-month uptrend) and 1.5866 (61.8% fibonacci retracement of 1.6878 –1.4229).
UsdJpy USDJPY remains in a directionless range as the bulls and bears are paralysed by the powerful opposing forces of pressured US yields and possible JPY intervention respectively. The top of that range is capped by the formidable 86.50 resistance, and we feel that without physical intervention from the BoJ the bulls will be unlikely to evoke a break higher by themselves. Even if we do manage to creep above, further rallies will be weighed by sellers back towards 86.89 (2 Aug high) and 89.90-88.10 (50-day moving average, psychological barrier and 28 Jul high). On the downside, weak support is eyed at 85.10 (yesterday’s low) but then the sticky patch between 84.73-85.00 is the only support area defined before 80.00 and 79.75 (historically significant 1995 low).
UsdChf Not much change in our assessment of USDCHF today. We are still participating in the double top pattern on the hourly chart, but the latest price action has thus far been a retracement higher rather than a progression to any fresh lows nearer our 1.0300 target. Given the rather directionless range USDCHF has been marking out over the past few weeks, we are still wary that our target lies below the significant support and range floor of 1.0332 (6 Aug low), so it seems prudent to trail our stop to 1.0460 to ensure this is now a risk-free trade (best case scenario we take profit at 1.0300, worst case scenario we close out for no net profit or loss). Our gut feeling is still that a break below 1.0330 would open up even deeper moves to 1.0229 (19 Jan low) and 1.0131 (11 Jan low), so if anything, 1.0300 seems conservative. If we bounce higher from here then first resistance is eyed at 1.0460 (back of the neckline and great place to add to shorts or get in on the trade for those who missed it the firs time), 1.0550 (last Friday’s high), and 1.0640-65 zone (27 Jul high and 200-day moving average). Should bullish momentum have the force to break through there then next levels are anticipated at 1.0700 (2 Jul high), 1.0790 (1 Jul high) and 1.0881 (100-day moving average).
Resistance And Support:
| 1.5866 | 88.00 | 1.0640 |
| 1.5800 | 86.90 | 1.0550 |
| 1.5715 | 86.50 | 1.0460 |
| 1.5519 | 85.48 | 1.0404 |
| 1.5500 | 84.75 | 1.0333 |
| 1.5440 | 84.00 | 1.0230 |
| 1.5400 | 79.75 | 1.0130 |
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot
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