Morning Report: USD Correction Trades In Play

FOMC Dovish Tone Sees USD Correction Begin

Last night’s FOMC minutes left the market somewhat wrong footed and the FOMC certainly struck a more dovish tone than the implications of the ‘dots’ discussed three weeks ago and the statement that followed. Post the September meeting, the market repriced Fed Interest rates markedly higher as Dec 16 Fed Funds futures jumped from 1.67% to 1.82%. Parsing last nights meeting minutes it is clear that some members of the committee see more downside risks than they considered or communicated at the time.

Yesterday’s minutes highlight a number of members observed that growth ‘might be slower than they expected if foreign economic growth came in weaker than anticipated; and that ‘some participants expressed concern that the persistent shortfall of economic growth and inflation in the Euro area could lead to further appreciation of the dollar and have adverse effects on the US external sector’. This implies that the committee will raise rates as they expect as long as their is a global feel good factor, which clearly isn’t prevalent right now. As such, Fed normalization is still far from a done deal at this juncture.

Today’s local data calendar sees attention move to the BOE with the rate decision given during the European US crossover.With the headline out of the US today being the weekly jobless claims.

USDJPY Comments overnight from BOJ’s Kuroda weren’t sufficiently inspiring to stem the downside pressure on the back of the dovish minutes release. Importer demand is noted at yesterdays low and it is anticipated they will mount a decent defence of reported stops sub the 107.50 level which also harbours reasonable sized optionality interest. With Daily Order Book Regression & Psychology Indicators firmly to the downside as Daily On Balance Volume comes off I will look to add to shorts on further bearish H1 signals playing for a retest of the 105.44 breakout zone.

jpy1

EURUSD continues a buoyant tone supported by the dovish FED , with the FED highlighting the higher dollar as an area for concern the EURUSD continued to consolidate and drift higher in the Asian session. With Daily On Balance Volume forming a base here and starting to move up, I will be looking for further H1 signals to add to longs with Daily Order Book Regression & Psychology both firmly to the upside. Though with Order Book Regression looking quite extended here as we retest the 61.8% retracement from below we could see some pullback before further upside and I will look for the 1.27 level to act as a base.

euu

GBPUSD BOE rate decision out later this morning and the Bank are likely to remain on hold keeping QE & rates unchanged. Bulls continue to track the positive momentum witnessed in the single currency and are supporting the bounce from this years low posted on Friday. With Daily Order Book Regression & Psychology indicators both positive as On Balance Volume starts to base, I will use positive crosses on the H1 indicators to set long positions though will wait for the BoE decision before any action.

ggbp

AUDUSD,as with other headline pairs the Aussie bounced on the back of the FOMC minutes, the Aussie Jobs report was the catalyst for a stutter in the ascent overnight but the Aussie found demand back at the 88 level and is now trading comfortably above yesterday’s highs. Bullish focus now shifts to stops above the 89 level to fuel further upside with a test of better offers at the 8920 the first key objective to the upside. Bears sidelined for now unless we see a retest and failure at the overnight lows below there demand at 8740 is the key support zone. As with the others, Daily Order Flow indicators are signalling bullish momentum and I will look to trade this on the lower time frames with tighter stops looking for a retest of the .91 broken support level.

au

The EURJPY continues to pullback from the highs posted in September and last Wednesday close sub the 100 DMA has firmly re-established focus on the on the 2014 lows. 138 remains the key BULL Bear battleground, with price currently caught under the original descending trendline from 2013 highs ( once broken) and horizontal support from 2014 lows. Bulls need to see a close above this level to re focus attention on stops above last weeks looking to act as the fuel for a further move higher. Daily Order Book Regression & Psychology Indicators have crossed positively through their midlines suggesting their may be scope for this move, but with On Balance Volume still caught in a directionless range, we could just see more of the same. If we can break through last weeks highs I will look for long entries on the lower time frames. 

EJ

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