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Currencies Locked in Holding Pattern Ahead of FOMC

Currencies Locked in Holding Pattern Ahead of FOMC

2010-03-16 10:54:00
Joel Kruger, Technical Strategist
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MORNING SLICES

SLICES LOGO

 

FUNDYS

Overall, market sentiment and risk appetite have been healthy, with global equities and commodity prices also showing bid. All eyes now turn to the highly anticipated FOMC decision due out later today, with many anticipating a potential change in the Fed’s language that will suggest a shift in monetary policy and warn of eventual rate hikes.

Relative Performance Versus USD on Tuesday (As of 10:35GMT) –

1)    KIWI              +0.30%
2)    STERLING    +0.28%
3)    SWISSIE       +0.11%
4)    CAD               +0.11%       
5)    AUSSIE         +0.09%
6)    EURO            +0.07% 
  
7)    YEN                -0.10%


The Eurogroup’s Juncker has come out overnight with some upbeat talk on Greece, saying that the Eurozone states would participate in any Greek rescue medium short of loan guarantees. Meanwhile, data out of the Eurozone has come in better than expected, with the German ZEW highlighting the overnight session. This has undoubtedly helped to keep the major currency well supported on dips. However, warnings from German FinMin Schaeuble that new debt in Germany will be “exorbitant” has also managed to generate offers ahead of 1.3700. Other data released in European trade includes better than expected UK DCLG house prices, slightly better Eurozone ZEW, and consensus Eurozone CPI.

Looking ahead, it is a busy North American session, with Canada manufacturing shipments (0.6% expected) and labor productivity (0.8% expected) due out at 12:30GMT, along with US housing starts (570k expected), building permits (610k expected), and import prices (-0.2% expected). Things are then expected to quiet down ahead of the FOMC (0.25% unchanged expected) at 18:15GMT.  US equity futures point to a higher open, while commodities are also slightly bid.

 

GRAPHIC REWIND

dxy3.16

 
TECHS


 
EUR/USD Friday’s close above 1.3700 strengthens the case for the formation of a short-term bottom, but it is 1.3800 that now becomes the key level to watch above. The market has been unable to close above 1.3800 since early February, and failure to do so again now, could once again expose a test of the recent range lows by 1.3440. A close above 1.3800 will open additional corrective upside, while back below 1.3670 keeps downside pressures intact. In the interim, we recommend that traders remain sidelined here. 

USD/JPY Has been very well supported on dips towards 88.00, and we look for the most recent sharp rebound to open additional upside over the coming weeks back above critical medium-term resistance at 93.75. The latest impressive rally from 88.00 reaffirms our outlook and only a close back under 88.00 would ultimately negate and give reason for pause. 

GBP/USD Technically, the break back above 1.5195 on Friday has triggered a major double bottom formation that would now project additional upside back towards the 1.5600 area over the coming days. Nevertheless, we are not as comfortable recommending a play of this double bottom, with daily studies having already corrected nicely from oversold levels, and the market very much locked in an intense downtrend. Instead, we recommend standing aside for now and awaiting a clearer signal.

USD/CHF The rally has finally stalled out for now ahead of 1.0900, with the market in the process of correcting from overbought levels. However, we look for the 1.0500 area to offer itself as a solid prop for additional declines, with a medium-term higher low sought out ahead of some bullish continuation back above 1.0900 over the coming days.  The 50-Day SMA also supports, and we would not expect to see a close below this medium-term SMA.

 

FLOWS



US prime name buying Usd/Jpy. Leveraged accounts on the bid in cross-Yen. Asian central bank selling of Gbp/Usd. Model accounts on the bid in Aud/Usd. Stops below 1.4500 in Eur/Chf.



TRADE OF THE DAY

tradeofday

Eur/Chf: The cross has fallen off of a cliff over the past few weeks with the market in a freefall and now looking to test critical psychological barriers by 1.4500. Weekly and daily studies are now highly oversold and the market is in desperate need for some corrective relief. Previous tests of support by 1.4500 have often been met with some very solid buying, and we would look for this barrier to once again act as a formidable support on dips. While we would not rule out the possibility for a break below these barriers on Tuesday, we will happily wait to buy the dip below the figure in anticipation of a major bounce. STRATEGY: BUY @1.4490 FOR AN OPEN OBJECTIVE; STOP 1.4420. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON TUESDAY). POSITION SIZE SHOULD BE 3X EQUITY.



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Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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