Forex - No Break from USD Selling - EUR and Gold Surge
| Forex News and Events:  The USD sank to new lows on broad based selling, as participants ponder whether the Fed is really concerned about potential inflationary pressure of QE and actually moving toward an exit strategy. In addition, risk appetite remains high and risk correlated trades are gaining across the board, many making yearly highs. The EURUSD traded up to 1.4755, while the AUDUSD traded up to 0.8772. Considering the wide spread, the USD selling the reaction in USDJPY has been muted, with the pair stuck in a mild 90.0- 91.80 range. Asian region indexes are currently trading higher across the board, with Shanghai leading gainers up 1.96%. Precious metals continued to rip through resistances, with spot Silver and spot Gold peaking at $17.65 and $1024.25, respectively. At this point, pressure is mounting on the greenback from all sides and we don’t see the selling abating any time soon. The BoJ left policy rates unchanged overnight, as was universally expected. However, the tone regarding economic prospects was slightly more optimistic. But markets are not too concerned over the BoJ 's stagnate monetary policy, but more interested in the incoming DPJ remarks on intervention and the JPY. So far, we have not gotten much insight, just random comments. The general sell-off of the USD has been distorting the historically positive correlation between USDJPY and SPX. We still believe the JPY is overbought and still remains a risk trade. When the USD stabilizes, then JPY will be next to come under significant selling pressure. In Switzerland, the SNB will be meeting today. We are inline with consensus and expected no change in interest rates. However, while the CHF is trading at the SNB implicit ceiling against the EUR , the recent strength against the USD might come under question. We would not be completely surprised if the Central Bank renewed its focus on exchange rates. While domestic data has improved, including yesterday's ZEW whopper, and global recovery well underway, deflation fears still linger and there is a clear understanding that backing away from their current stance will lead to substantial CHF gains. Currently, EURCHF is trading around horizontal resistance located at 1.5193 as traders unwind long CHF positions due to event risk. The sterling was able to shrug off Governor King's statement about the likelihood of lowering the rate paid on banks' reserves for most of Asian trading. However, when UK retail sales failed to reach market expectations printing at 0.0 vs. 0.1% m/m (2.1 vs. 2.7% exp y/y) sellers jumped in, trading the GBPUSD down to the 1.6500 handle. In the US, data should continue to surprise to the upside (House Starts, Build Permits, Continuing Claims and Philly Fed) to the detriment of the USD. In Canada, the CPI will be released and markets are expecting it to remain weak. The data will be less important than the fact that traders will be watching CAD. Markets have been jittery around the CAD since BoC continues to warn against elevated CAD levels. Just yesterday, BoC Deputy Governor Murray stated that a strong CAD is a 'headwind' that threatens economic recovery. With USDCAD trading to yearly lows (breaking key horizontal support at 1.0630) we expect verbal intervention to begin in earnest now.  |
| Today's Key Issues (time in GMT): 08:30 GBP Retail sales, % m/m (y/y) Aug 0.1 (2.6) exp 09:00 EUR Trade balance, € bn (sa) Jul 0.3 1.1 1.0 4.0 1.2 11:00 GBP CBI industrial trends, total orders, net bal Sep -50 exp, -54 prior 11:00 CAD CPI, %y/y Aug 0.1 -0.6 exp, -0.6 exp, 0.9 prior 11:00 CAD Bank of Canada core CPI, %y/y Aug 1.6 exp, 1.8 prior 12:00 CHF SNB Interest rate announcement, % Q3 0.0 - 0.75 exp/prior 12:30 EUR ECB non-policy meeting 12:30 USD Initial jobless claims, thous (4wk ma) 12-Sep 561 (565) exp 12:30 USD Housing starts, thous Aug 594 exp, 581 prior 14:00 USD Philadelphia Fed mfg index Sep 8.0 exp, 4.2 prior 16:00 USD Flow of Funds accounts Q2 |
| The Risk Today: GbpUsd While on the carry trade theme, sterling has just added another feather to the bow of weakness. If risk appetite subsides, sterling should get hit. If risk appetite increases, sterling should still get hit because of the carry trade. Doesnt leave much hope for the cable bulls. Only a break above 1.6750 would put the current head and shoulders formation in jeopardy. UsdJpy The 6 week downtrend continues to dominate for the pair. With some support found at 90.20 and positive RSI divergence there is a chance that we see a pop up to the upper downtrend and resistance at 91.80 where one would expect to see short sellers coming back for more. Keep a close eye on the 4 hourly RSI to see if ti breaks its uptrend over the next 24 hours as this can give an early indication to whether we see a break of 90.20 or not. UsdChf We mentioned a few days back that sicne the descending triangle breakdown, there is a very clear trend channel on USD CHF 15 minute chart that can be traded very easily. This point remains firm with shorts expected on the upper trendline and resistance in the 1.0340 / 50 area with 1.0260 as the next support in the pair's continued march towards the text book target of 1.0050. Bear in mind that text book targets are applicable only in a perfect world so it is more likely that the pair will find major support at 1.0150. |
Resistance and Support:
| EURUSD | GBPUSD | USDJPY | USDCHF | |
| 1.4910 | 1.6745 | 93.30 | 1.0700 | |
| 1.4860 | 1.6700 | 92.30 | 1.0550 | |
| 1.4800 | 1.6660 | 91.80 | 1.0452 | |
| 1.4737 | 1.6538 | 90.70 | 1.0314 | |
| 1.4640 | 1.6445 | 90.10 | 1.0220 | |
| 1.4560 | 1.6425 | 89.90 | 1.0175 | |
| 1.4520 | 1.6365 | 89.20 | 1.0135 | |
| S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot | ||||
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