Dust Settles After SNB Floors Markets

KEY DATA RELEASES TODAY (GMT) :

1000 EUR Final CPI y/y exp -0.2% v -0.2%
1330 USD CPI m/m exp -0.3% v -0.3%
1330 USD Core CPI m/m exp 0.1% v 0.1%
1415 USD Industrial Production m/m exp 0.1% v 1.3%
1415 USD Capacity Utilization Rate exp 80.2% v 80.1%
1455 USD Prelim UoM Consumer Sentiment exp 94.2 v 93.8

OVERNIGHT:

A much quieter session overnight in G10 FX although EUR/CHF has still managed to print a 400pip range in Asia, albeit on light volumes. Markets surprised the SNB decided not to retreat from the peg in a more manageable fashion, rather than simply pulling rug from under the 1.20 floor completely. At his press conference yesterday, Jordan tried to put a positive spin on the decision, noting the floor was unsustainable and that Switzerland would not enter deflation as a result of the franc’s rise. Market believes they feared that the cost of maintaining the 1.20 level would be significantly higher after the ECB embarked on QE and they were left as the EUR buyer of last resort. How much further intervention, rate cuts or other changes the SNB may need to fight deflation from here remains to be seen. Either way, the near term impact to exporters and the balance sheet stress for many private participants may serve to take some of the steam out of the franc’s rise.

USD/JPY and the JPY complex were better offered in Asia after the SNB move yesterday. EUR/JPY led the way, moving marginally lower to 134.70 and the retracement high limited to 135.43 with dealers anxiously awaiting Europe’s return. It is only a stone’s throw away from the October 16 spike low of 134.15, and a break below here and 134.00 threaten massive stops. USD/JPY fell to 115.85. Its retracement high was 116.56. This pair too is only a stone’s throw away from its October 16 spike low of 115.56. Stops are large below 115.50 but reported bids from Japanese investors and importers are mixed in. Market sources report the BOJ, GPIF and other semi-official entities have been in the market all week supporting both stocks and USD/JPY, and were likely in again today (though unable to stop the carnage in stocks). Option expiries at 116.00 and 116.50 helped bracket the market. The USD/JPY-Nikkei correlation remains very much on.

EUR/USD and the EUR complex steadied in Asia, if only temporarily, with the market awaiting fresh direction from Europe after the SNB move to de-peg EUR/CHF. EUR/USD traded 1.1600-47, managing to hold above yesterday’s 1.1568 low. The bias remains down with the SNB move seen opening the floodgates for fresh pushes lower, resistance eyed at 1.1768 a level which has capped it since December 17. Of course ECB expectations and Greece concerns will help pressure EUR lower. EUR/CHF traded nervously between 0.9761-1.0100 after the gap down from 1.20+ to 0.8500 on EBS yesterday.

Looking ahead CPI data from both the Eurozone and the US will be eyed

OVERNIGHT PRICE ACTION:

EUR: 1.1550 projected trend channel support holds decline, bias down below 1.1750
GBP: Below 1.5250 keeps focus on 1.50, break opens 1.54 test
JPY: 116 continues to hold on the downside, 118 resistance maintains downside pressure
CAD: supported at 1.18 keeping pressure on 1.20 a break to open 1.22/23 test
AUD: 0.83 trendline test under way, while .83 contains .80 targeted, a break of 83 opens .8450

KEY TRADES:

ANALYSIS:

EUR/USD Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks) Bearish

• Projected trend channel support at 1.1550 stems the initial decline, previous support at 1.1750 now resistance
• Order Flow indicators; OBV consolidates at lows, yet to confirm new lows in price, Linear Regression and Psychology bearish
• Monitor price action at 1.1750 retest from below to set short positions to target retest of 1.1567 lows

GBP/USD: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks) Bearish

• 1.50 first downside objective while resistance 1.54 holds. Shorter term resistance at 1.5250/1.53 continues to cap
• Order Flow indicators; OBV consolidating at lows ticking up, Linear Regression and Psychology ticking up pierce midpoints from below but seem to be stalling
• Staying flexible monitoring price action at 1.5150 for shorts and 1.5270 for longs

USD/JPY: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks) Bullish

• 116 holds again overnight to maintain the potential for boarder bullshit consolidation pattern, shorter term 118 needs to be reclaimed to reduce downside pressure
• Order Flow indicators; OBV pulling back from highs, Linear Regression and Psychology bearish but ticking back up
• Monitoring price action at potential support 116 to reset longs and align with weekly bullish trend

USD/CAD: Short Term (1-3 Days): Bullish - Medium Term (1-3 Weeks) Bullish

• 1.20 resistance retest eyed as 1.18 support attracts buyers
• Daily Order Flow indicators; OBV ticking back up to retest highs, Linear Regression and Psychology pulling back to test midpoints from above
• Longs in play, please see key trades for details

AUD/USD: Short Term (1-3 Days): Neutral - Medium Term (1-3 Weeks) Bearish

• Trend channel resistance at 0.83 test under way, bias remains to the downside while this area contains, a break opens .84/85
• Order Flow indicators; OBV ticking up from lows, Linear Regression and Psychology recapture midpoints from below
• Monitoring resistance at 0.83 to set short positions initially targeting break of 0.80