One Thing Is Obvious….
Another day where FX traders marked time. There were some short-term
opportunities on the heels of the Core PCE Prices as dollar bulls took a
breather, but the move up in the EUR and GBP was well contained by the
resistance levels mentioned in yesterday’s brief, mainly 1.2070 and 1.8262
respectively. Holding out for large moves is just not practical. Each level
needs to be respected and positions need to be established or liquidated in or
around those areas.
Until Thursday, it is likely
that this same pace will persist. Then we have an ECB and BOE rate decision.
While it is widely expected that the ECB will remain on hold, the BOE is
expected to hike by another 25 bp’s. With data coming in soft recently in the
UK, the surprise would be no rate cut if in fact the BOE detects their desired
slow-down already in bloom. This will likely send the Pound lower as
significant rate hikes are built in at present. While this scenario is
unlikely, it is one to be aware of. Technically, under this scenario1.8013 and
1.7891 would be the next likely targets. Even if the 25 bp’s is administered,
it is becoming obvious that the rate cuts are beginning to slow things down a
bit. Home prices and mortgage apps have suffered set-backs recently, but are
still rather firm. If the recent data is simply seasonal, the Pound may catch a
bid to move towards 1.8309 and 1.8489.
Meanwhile, the EUR bulls seem
to be hanging in there despite taking some hits in the recent week. It would
appear that the pain inflicted thus far has not forced them to the exits.
Technically it appears that 1.1970 will the level that should invite some more
aggressive selling. However, with daily and weekly models firming, a
significant move lower seems unlikely ahead of Friday’s payroll data. The
surprise would be a move out of this consolidation level at 1.2000-1.2100 to
test 1.2176. Again, a rate hike by the ECB or very weak payroll data would be
the only catalyst for this to occur.
We closed out our short in the
AUD/NZD this morning for a 160 pip profit. We are still short EUR/CAD
from 1.5996.
USD/JPY
As mentioned in the FX Weekly
Strategy, the $/Yen was simply to overbought to establish or add to positions.
Naturally, it has start to come in in recent sessions and is looking like a good
long in the 109.70-110.50 area.
EUR/GBP
Our models indicate this recent
move higher is losing steam and that .6650 will be the ceiling. We still see
our target of .6474 being achieved.
AUD/USD
Still vulnerable to any news
regarding Chinese economic data and Asia in general. Technically setting up on
the short side again. Our targets remain .6904 and .6776 in the weeks to come.
Technical Levels for
Wednesday
EUR: 1.1970, 1.2029
GBP: 1.8110, 1.8160,
1.8215
CHF: 1.2847, 1.2800,
1.2770
NZD: .6420 (the kiwi
is firm against the $ this am, look to go long on any $ weakness)
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your comments and questions.