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Overall Price Action Continues to Show the USD Under Pressure

Overall Price Action Continues to Show the USD Under Pressure

2011-03-31 05:35:00
Joel Kruger, Technical Strategist
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Markets continue to give more credit to any tiny indication of a Eurozone rate hike next week, while to this point, easily dismissing what could be some more important hawkish commentary out from a slew of Fed officials. ECB Bini Smaghi was on the wires on Wednesday all but guaranteeing the need for a rate hike next week, and this proved to be enough to put the buck back under pressure across the board. The commodity bloc has been the key outperformer throughout the week, even amidst the early USD bullish Fed rhetoric, and the Australian Dollar leads the way, breaking to fresh post-float record highs on a daily basis. Also seen supporting currencies has been the ongoing and unwavering demand for equities and commodities

The focus from now until the end of the week will start to shift to Friday’s US data releases, with NFP and ISM manufacturing due out. Both of these releases are key indicators for the US economy and any sign of continued improvement and recovery in this data will undoubtedly provide some real backing for the latest Fed comments. However, any disappointment within the results could open the door for an acceleration of broad based US Dollar declines.

On the data front, Australian economic releases were certainly not supportive of the latest Aussie strength after retail sales came out only slightly better than expected, and was easily overshadowed by a much weaker than forecast building approvals number. Meanwhile. New Zealand data was also disappointing, with business confidence slumping in March. Elsewhere, some early Thursday UK data showed a not as bad consumer confidence reading and weaker Hometrack result.

Looking ahead, key economic releases in European trade come in the form of German unemployment at 7:55GMT and Eurozone CPI at 9:00GMT. However, as has been the case in recent trade, we would not at all be surprised if broader themes play a more significant influence on intraday price action. US equity futures are tracking flat but trade just off the recent yearly highs, while commodities are slightly higher.

ECONOMIC CALENDAR

Overall_Price_Action_body_Picture_5.png, Overall Price Action Continues to Show the USD Under Pressure

TECHNICAL OUTLOOK

Overall_Price_Action_body_eur.png, Overall Price Action Continues to Show the USD Under Pressure

EUR/USD: A closer look at the weekly chart shows the market failing ahead of some key resistance from November 2010 at 1.4280 and reversing to confirm a bearish weekly close and break of a sequence of 5 consecutive weekly higher lows. This certainly warns of the potential for deeper setbacks ahead, and we initially will look for a daily close back below 1.4050 to provide further confirmation for reversal prospects. The 1.4050 level loosely coincides with some rising trend-line support off the 2011 lows and a daily close below this level could accelerate declines towards next key support by 1.3750 further down. Back above 1.4250 delays.

Overall_Price_Action_body_jpy2.png, Overall Price Action Continues to Show the USD Under Pressure

USD/JPY: The latest violent drop-ff to fresh record lows by 76.35 has been intense, with the market threatening a fresh longer-term downside extension below 80.00. However, given the nature of the move, we would not at this point categorize the downside break as anything significant that alters the medium-term outlook. For now, the sidelines are the best place to be and we will look to see where the market closes this week to gain a clearer perspective. A weekly close below 79.75 might open a retest of the 76.35 spike lows, but any additional declines below 76.00 are seen limited. A weekly close back above 81.20 on the other hand, would take the immediate pressure off of the downside.

Overall_Price_Action_body_gbp2.png, Overall Price Action Continues to Show the USD Under Pressure

GBP/USD: The 1.6300 handle continues to be a difficult obstacle for bulls, with the market unable to hold above the figure for any meaningful period of time. As we had warned in the previous daily analysis, the market has once again rejected trading above the figure to set up a bearish reversal exposing deeper setbacks into the 1.5700 area over the coming sessions. Ultimately, only back above 1.6300 delays.

Overall_Price_Action_body_swiss1.png, Overall Price Action Continues to Show the USD Under Pressure

USD/CHF: The latest break to fresh record lows below 0.9000 (0.8910) is certainly concerning and threatens our longer-term recovery outlook. Still, we do not see setbacks extending much further and continue to favor the formation of some form of a material base over the coming weeks for an eventual break back above parity. Look for the market to hold above 0.9100 on a daily close basis, while back above 0.9370 will officially confirm reversal prospects and accelerate gains. Only a break and weekly close below the recent record spike lows at 0.8910 ultimately delays outlook.

Written by Joel Kruger, Technical Currency Strategist

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