Morning Report: FOMC Minutes Support USD, NFP’s Eyed

KEY DATA RELEASES TODAY:

1000GMT EUR Retail Sales m/m exp 0.3% v 0.4%
1330GMT USD Unemployment Claims exp 291K v 298K

OVERNIGHT:

A solid rebound in US equities saw it break a string of 5 consecutive losing sessions with the Dow closing up 1.23% and the S&P 500 up 1.16%. Asian equities have also recovered with the Nikkei up 1.67% and back above the 17000 handle. Fed minutes clarified that participants thought the “reference to patience indicated that the Committee was unlikely to begin the normalisation process for at least the next couple of meetings.” Nonetheless, the minutes echoed Fed chair Janet Yellen’s comment and noted that “the Committee might begin normalisation at a time when core inflation was near current levels.” Though, even in that case, policy makers “would want to be reasonably confident that inflation will move back toward 2 per cent over time.” Chicago Fed’s Evans, speaking in Asia, added he’d like to see rates on hold until 2016. He also noted that inflation outlook is worrisome, growth would trend in 2.0-2.25% range, and the housing sector is yet to show evidence of required strength.

USDJPY led the JPY complex higher once again, powering up from a retracement low of 118.84 late in New York and 119.17 early in Asia to 119.82. Japanese importers and investors were again bargain hunting, and more recent spec shorts were squeezed. Stops were tripped above 119.65, the high in New York before the push down to 118.84. More stops are eyed above 119.80 and 120.00. Large option expirations at 120.00 (1.386 bln) helped cap the upside. EURJPY saw a bump up from 141.13 to 141.68.

EURUSD opened in Asia at 1.1840 after heaviness overnight on the negative Eeurozone inflation reading. Up a bit to 1.1848 early, it came under gentle pressure later, falling back to 1.1816 before option-related bids pre-1.1800 discouraged attempts lower. Sentiment remains bearish on building expectations of full-blown ECB QE at the January 22 meeting and ongoing Greece political uncertainty.Stops are seen large below presumed option barriers at 1.1800, and a break below could see significantly lower levels.

Elsewhere, GBPUSD edged lower from 1.5118 to 1.5086 in Asia with short-covering flows seen late in New York having abated and sentiment still decidedly bearish.  AUDUSD is up 30pips after better than expected housing data. Building approvals rose 7.5% mom in November versus expectation of -3.0% fall.

Looking ahead, the BOE is expected to keep rates unchanged at 0.5%, while we also get Eurozone PPI, retail sales and confidence indicators. In the US we get challenger job cuts and jobless claims while Canada will release new housing price index.

OVERNIGHT PRICE ACTION:

EUR: 2010 lows give way 1.18 under pressure
GBP: Descending trendline support eroded, 1.50 eyed next
JPY: Holds trend line support for trend continuation 2014 highs targeted
CAD: Pin bar rejection of ascending trendline resistance
AUD: Psychological 0.80 level targeted, while below 0.82

KEY TRADES:

FX PairShort TermPosition/DateEntry LevelTargetStopComments
EURUSDBearishAwait new signal
GBPUSDBearishAwait new signal
USDJPYBullish BUY/06 JAN 119.50 OPEN118.00
USDCADNeutralSELL/08 JAN 1.18 OPEN 1.19Counter Trend
AUDUSDBearishAwait new signal

ANALYSIS:

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

  • 2010 lows eroded, immediate pressure on 1.18, resistance at 1.19 
  • Order Flow indicators; OBV consolidating at new lows, Linear Regression tick up from lows and Psychology bearish at recent extremes
  • Watching price action for short entries at retest of 1.19/20 from below

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

  • Eroding primary descending trendline support 1.50 first downside objective, resistance 1.51
  • Order Flow indicators; OBV retesting lows, Linear Regression ticking up from lows and Psychology bearish at recent extremes
  • Monitoring retest of 1.5150 from below to set short positions targeting a break of 1.50

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

  • Trend line support holds and sets platform to retest 2014 highs
  • Order Flow indicators; OBV new highs, Linear Regression bearish and Psychology rotating at midpoint
  • Longs in play, see key trades for details

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

  • Pin bar rejection of topside projected trend channel resistance
  • Daily Order Flow indicators; OBV consolidating at highs, Linear Regression pulling back to test midpoint from above and Psychology bullish
  • Attempt tactical short trade against yesterdays pin bar, will reverse to long on retest of previous highs as support, see key trades for details

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

  • Psychological 0.80 remains downside objective while resistance at 0.82 remains intact
  • Order Flow indicators; OBV consolidating at depressed levels, yet to confirm new lows in price, Linear Regression ticking up to test midpoint from below and Psychology rotates at midpoint
  • Monitoring resistance at 0.82 to set short positions targeting break of 0.80

au2015-01-08 08_04_34-

 

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