Morning Report: Draghi Disappoints, USD Bulls Await NFP’s

KEY DATA RELEASES TODAY:

1330GMT USD Non-Farm Employment Change exp 231K v 214K
1330GMT USD Trade Balance exp -41.3B v -43.0B
1330GMT USD Average Hourly Earnings m/m exp 0.2% v 0.1%
1330GMT USD Unemployment Rate exp 5.8% v 5.8%
1500GMT USD Factory Orders m/m exp 0.0% v -0.6%

OVERNIGHT:

After the whipsaw price action post ECB yesterday, the FX markets have settled down ahead of non farm payrolls this afternoon. Draghi left the door open for new measures in Q1 2015, but he did not specifically highlight government bonds as part of that strategy. This was a clear disappointment to market expectations, which had been pricing in a pre-announcement of QE. The German daily, Die Welt, reported that at today’s meeting not only Mersch and Lautenschlaeger were opposed to sovereign QE, but also Benoit Coeure. As a result, Draghi did not have a majority in the Executive Board – which is a first in the history of the ECB.

EURUSD bounced from the lows, all the way back towards the weekly open levels around 1.2450, but the subsequent headlines allowed a move back down to 1.23 handle. Elsewhere, USDJPY regained its 120 status after a sharp retracement sub 119.50. Not much in terms of technical resistance until 122, but I expect today’s price action will be a direct function of the data releases. In GBPUSD, the downward trend has resumed, with 1.5585 still the key support level. AUDUSD more subdued over the last 24 hours with most of the local data already released earlier in the week. 0.8356 is the immediate support level with major support at 0.8315 lurking beneath.

Looking ahead, the main event today is the US Labour market report. Markets are forecasting a 235,000 gain in payrolls, 5.7% v. 5.8% unemployment rate, 34.5 v. 34.6 average workweek, and 0.2%/ 1.9% Y/Y average hourly earnings. Unusually cold temperatures across the middle part of the country in the first half of November may have led to some acceleration in seasonal layoffs in outdoor areas like construction and leisure. On the other hand, seasonal hiring for the holiday shopping period ramps up sharply in November.

OVERNIGHT PRICE ACTION:

EUR: Whipsaw on headline risk, price retesting trendline resistance
GBP: Drifting in lower end of range
JPY: A pause after new year to date highs, ascending trendline eyed above
CAD: Double top resistance to be retested
AUD: Consolidates  at  lows ahead of risk event

KEY TRADES:

FX PairShort TermPosition/DateEntry LevelTargetStopComments
EURUSDNeutralAwait new signal
GBPUSDNeutralBUY/ Nov 251.5745 OPEN1.5580
USDJPYBullishAwait new signal
USDCADNeutral SELL/ Dec 02 1.13 OPEN 1.1490
AUDUSDBearishAwait new signal

ANALYSIS:

EURUSD Short Term (1-3 Days): Neutral  – Medium Term (1-3 Weeks) Bearish

  • Price holds descending trendline support and retests trendline resistance in whipsaw price action
  • Order Flow indicators; OBV bearish but off lower levels, Linear Regression and Psychology retesting midpoint from below.
  • Watching for a break of yesterdays high or low for directional guide

eu2014-12-05 07_30_09-

GBPUSD: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks) Bearish

  • Retesting lower end of the range, continues to consolidate in  1.56-1.58 area
  • Order Flow indicators; OBV consolidating at lower levels, Linear Regression and Psychology rotating around midpoints
  • Counter trend longs in play

gu2014-12-05 07_32_23-

USDJPY: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks) Bullish

  • 120 achieved, ascending trendline resistance eyed above
  • Order Flow indicators; OBV bullish, Linear Regression and Psychology piercing midpoints from below
  • Watching for rejection of previous resistance to set new long positions

uj2014-12-05 07_34_41-

USDCAD: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks) Bullish

  • Price retesting potential double top resistance again, range contracting
  • Daily Order Flow indicators; OBV bullish no new highs, but ticking back up, Linear Regression and Psychology rotating at midpoints
  • Counter trend short orders stand against double top resistance

uc2014-12-05 08_20_10-

AUDUSD: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks) Bearish

  • Close below descending trendline support suggests trend continuation, consolidating at lows ahead of headline risk event
  • Order Flow indicators; OBV ticking lower confirming price action, Linear Regression and Psychology bearish, testing lower level support areas
  • Monitoring retest of previous support as resistance to set new shorts

au2014-12-05 08_22_48-

 

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