Morning Report: Market ‘Patiently’ Waiting For The FOMC

KEY DATA RELEASES TODAY (GMT) :

0930 GBP Claimant Count Change -30.6K v -38.6K
0930 GBP Unemployment Rate 5.6% v 5.7%
0930 GBP Average Earnings Index 3m/y 2.2% v 2.1%
0930 GBP MPC Asset Purchase Facility Votes 0-0-9 v 0-0-9
0930 GBP MPC Official Bank Rate Votes 0-0-9 v 0-0-9
1230 GBP Annual Budget Release
1430 USD Crude Oil Inventories 4.0M v 4.5M
1800 USD FOMC Economic Projections
1800 USD Treasury Sec Lew Speaks
1800 USD Federal Funds Rate 0.25% v 0.25%
1800 USD FOMC Statement
1830 USD FOMC Press Conference

OVERNIGHT:

Market continues to remain skittish and in wait and see mode as we move ever closer towards tonight’s FOMC event with expectations of the word ‘patient’ being removed relatively priced in to the market it may take some direct reference to the recent bout of broad USD strength to ignite volatility. For EURUSD in the short term the 1.0620/­40 area continues to provide stubborn resilience on any rally and a break of this level may open up for move towards 1.0760.Medium term still look towards 1.0830/50 as key resistance level and any USD sell off post event to these levels will provide opportunity to enter bearish views at favourable entry levels in the EURUSD. To the downside we have to take the recent 1.0455 low as pivotal and catalyst for increased downside momentum on any break.

The holding pattern continues in USDJPY ahead of the FOMC policy decision, which should take us out of this 121.00/­60 range. It does seem like the market has reasonably lightened up for this event especially after the slew of bad US economic data and after the BOJ policy decision yesterday. With the domestic story remaining robust (exports gaining, base wage increases have been officially announced, and it looks like they are in line with the BOJ’s rargets), market remains better buyers on dips. The risk for tonight, then, is for a hawkish bias to accompany the removal of “patient” from the FOMC statement. If this is the case, we anticipate a clean break above 122.05 immediately, which opens up a fresh move higher.

GBPUSD remained heavy yesterday, EURGBP was a standout pair, with the cross trading briefly to as high as 0.7217 amid short covering. It’s going to be a day of volatility for GBP given the risk events in store, namely the BOE MPC Minutes, the employment report, the release of the Final Budget before elections, and finally the FOMC policy decision. Market maintains bearish positions in cable, with price action in GBP in spite of the offered tone in the USD quite encouraging. Look for a move towards 1.4500 initially if we see renewed USD strength after tonight

The stories building in the commodity currency space remains bleak… The latest dairy auction in NZ saw a sharp drop of 9.6 pct in the whole milk powder price index… Iron ore futures continue to get sold (Dalian futures currently ­2.6 pct), which does not help the likes of Fortescue who has abandoned its plan to sell 2.5Bln of 7­year debt amid “credit market volatility” today… Oil prices make fresh lows overnight as oil inventory build­ up concerns escalate. With this backdrop, and with the FOMC poised to take global yields higher, the market maintains a bearish stance in commodity currencies in spite of the temporarily binary nature of the events tonight. Levels to watch in the currencies: 1.2800/25 in USDCAD & 0.7560/0.7500 in AUDUSD.

PRICE ACTION OVERVIEW:

EUR: While 1.0610/30 contains upside target 1.03
GBP: While 1.4840/60 contains upside target 1.46
JPY:  While 120.60/40 contains downside target 124.00
CAD: While 126.60/40 contains downside target 130
AUD:  While .7760/80 contains upside target .72

KEY TRADES:

FX PairShort TermPosition/DateEntry LevelTargetStopComments
EURUSDBearish Await new signal
GBPUSDBearishAwait new signal
USDJPYBullish Await new signal
USDCADBullishAwait new signal
AUDUSDBearish Sell/02 Mar .7760 Open.7760

ANALYSIS:

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

  • While 1.0610/30 caps upside pressure remains on the downside, with 1.03 the next downside objective, above 1.0650 suggests 1.0760 test in broader correction, only above 1.0840/60 concerns bearish view
  • Order Flow indicators; OBV consolidates at lows, Linear Regression and Psychology pierce midpoints from below
  • Monitoring price action and Order Flow below 1.0840/60 to reset short positions targeting 1.03

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

  • While 1.4840/60 caps upside 1.46 is the next downside objective only a break  above 1.4940/60 suggests a broader correction, only above 1.5010/30 concerns bearish view
  • Order Flow indicators; OBV at lows, Linear Regression and Psychology bearish but ticking up to test midpoints from below
  • Monitoring price and Order Flow below 1.4940/60 to reset short positions against 1.5010/30 targeting 1.46/45

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

  • Continued bullish consolidation just below 2014 highs and double top, watching for correction to 120.20/40 previous resistance to act as support and base for sustained break of 2014 highs, only below 119 concerns bullish bias
  • Order Flow indicators; OBV continues consolidation, Linear Regression supported at midpoint, Psychology pierces midpoint from above
  • Monitoring price action and Order Flow indicators on retest of 120.00/120.50 to set longs targeting 124

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

  • Expect retest and break of 1.28 with 1.30 the next key objective, only below 1.2350 concerns upside bullish bias
  • Daily Order Flow indicators; OBV at highs, Linear Regression and Psychology supported at midpoint retest
  • Monitoring price action and Order Flow indicators to set long positions at 1.2550 targeting 1.30

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AUDUSDShort Term (1-3 Days): Bearish  – Medium Term (1-3 WeeksBearish

  • While .7740/60 caps upside reactions next downside objective is .75 with .72 beyond only above .7860 concerns bearish bias
  • Order Flow indicators; OBV consolidates at lows, Linear Regression and Psychology bearish rejected at midpoint retest from below
  • Risk free shorts in play

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