We’ve seen the recent trend in USD strength backing off over the past couple of days ahead of Bernanke’s testimony before Congress tomorrow, although the JPY is on the defensive again ahead of tonight’s Bank of Japan meeting.
There was a flurry of activity last night when the otherwise extremely dovish Chicago Fed president Charles Evans delievered optimistic words on the economy, saying that he expected escape velocity by 2014 and eventual tapering of Fed purchases.
The proof will, of course, be in the data, which has been remarkably inconsistent lately – but with much of the more forward data suggesting worrisome weakness.
GBP in focus next two sessions
Look for GBP to move in the next day, and a bit more as we have a fairly heavy data load (inflation data today and Retail Sales and Bank of England minutes tomorrow). The EUR/GBP can’t decide what it wants to do, and the GBP/USD has politely consolidated a bit. I’m not looking for any developments of note, so looking for the GBP/USD to turn lower again, with the possible near-term risk that GBP-supportive data sees a brief extension of the rally before that eventuality. Looking at 1.5280/1.5300 as the first key resistance zone.
Bank of Japan tonight
The event of the week is tonight’s BoJ meeting and the press conference that will take place in the early European session tomorrow morning (6.30 GMT). As mentioned yesterday, the key here will be any signal that the BoJ wouldn’t mind seeing a bit less volatility in the currency market move and would prefer that the Japanese bond market calms down somewhat after the rapid pick-up in yields. The potential for downside volatility is far greater, I feel, although this doesn’t mean that the volatility will be realized in the coming few days.
Stay tuned. A Reuters story out overnight suggests that Japan’s companies are largely happy with where the JPY is now, with only 15 percent wanting the JPY weaker than it already is at present. Very interesting. The move from 80 to 102 in USD/JPY was the easy part – from here, I have a feeling that things are going to get a lot trickier for JPY bears.
Technical observations
EUR/USD: 1.2900/05 is in resistance now and tactical shorts might look to get a round trip ahead of the Bernanke testimony. Still looking at the head and shoulders as the dominant formation, with the expectation that the sub-1.2800 neckline gives way and takes us to 1.2500 eventually. 1.2950 is the next resistance level and 1.3000/50 is last-ditch near-term resistance.
USD/JPY: Averted downside pressure overnight again – we should get either attempt at highs and beyond, or blow through support on the heels of tonight’s BoJ meeting (or first one and then the other). Again, looking for a two-way market to deepen in JPY crosses. 101.85 and 100.00 are the structural supports of note.
EUR/JPY: Downside threat turned aside again overnight, but would look for the market to hold its breath ahead of the BoJ tonight and Haruhiko Kuroda's press conference. 132.80 is resistance (recent high) and 131.15 looks like quite a downside trigger if it comes into play again on a more JPY-positive reaction to the proceedings.
GBP/USD: 1.5275/1.5300 looks like the first key resistance zone as the focus remains firmly lower for at least a test of 1.5000, and eventually a probe of those 1.4832 lows.
EUR/GBP: Absolutely no momentum. Short-term options might be an idea for expressing a view. The technical triggers are 0.8400 and 0.8500. I’m no fan of sterling, but I don’t want to touch this one unless we see signs of a rally to reject the recent bearish reversal.
EUR/CHF: A fairly orderly consolidation unfolding and a well defined range – will be interesting to see if this one can operate independently or if it requires that the JPY also weakens again to break higher. It’s a long wait until the Swiss National Bank meeting in almost a month’s time. 1.2380 is the first major support.
USD/CHF : Prefer to look long, with the 0.9650 area as the first key support and the 0.9580 as the more important lower support. Parity is the next structural level of interest.
AUD/USD: We’ve come well off the lows, but this was an epic move, so still room for further consolidation if the market is in that kind of mood. There was hardly any reaction to the Reserve Bank of Australia's minutes. Ultimate resistance is 1.0000/1.0100, but wondering if the market will give us such an ideal level to sell into; local resistance lies ahead of 0.9850.
NZD/USD: 0.8200/20 should begin to offer some resistance and already has to some degree overnight. Final resistance is perhaps the 200-day moving average up just under 0.8300. Prefer a go at 0.8000 sooner rather than later.
USD/CAD: Nice retracement late yesterday, to almost a precise test the previous 1.0220 high and keep the local trend channel intact. The key is whether we can move on to take out the 1.0343 highs, which are the highest since almost a year ago.
EUR/NOK: The first downside objective at 7.500 came into view after all, probably helped by the comeback in Crude oil prices. We’ve taken out a rising trend line, although I’m not sure that’s particularly important for the outlook. A move back through 7.53/7.55 suggests that we are carving out a new range and neutralising the downside threat.
EURSEK: Well-defined range with the 200-day moving average at 8.5250 a key support, although with possible slippage back to the 8.5000 area. Looking for a rally to target 8.75 soon and possibly 9.00.
Economic data highlights
- Germany Apr. Producer Prices out at -0.2% MoM and +0.1% YoY v. -0.1%/+0.2% expected, respectively and vs. +0.4% YoY in Mar.
- Sweden Apr. Unemployment Rate out at 8.4% (seasonally adjusted) vs. 8.3% expected and 8.4% in Mar.
- UK Apr. PPI Input/Output (8.30am)
- UK Apr. CPI/RPI (8.30am)
- US Fed’s Bullard to speak (3.30pm)
- Canada Bank of Canada’s Carney to speak (4.45pm)
- US Fed’s Dudley to speak (5pm)
- US Weekly API Crude Oil and Product Inventories (9.30pm)
- Japan Apr. Merchandise Trade Balance (11.50pm)
- Australia May Westpac Consumer Confidence (12.30am)
- Japan Bank of Japan announcement (no time given)
- Japan Bank of Japan’s Kuroda to hold press conference after BoJ meeting (6.30am)