Choppy Week Expected Due To Uncertain Rates

Over the weekend we had numerous speakers talking about how the global economic recovery is simply not progressing as well as had been thought earlier in the year. The US speakers outlined quite doveish views that this sets rate hike expectations further back than initially forecast. This places the dollar in a strange position. If we get a pick-up in global economic conditions, which are either directly or indirectly guided by how well Europe does, then the US will hike rates sooner and the dollar will go up. If Economic conditions deteriorate in Europe triggering a global slow down, then the Euro will be sold, pushing the dollar up, but since stocks would also be sold due to the lack of helicopter money from the Fed propping up the S&P, this places the Yen squarely in the firing line for strengthening too, despite the BOJ’s massive stimulus effort. When things get messy though, traders reach for the exit and square up positions so this could push back against the strong dollar rally, purely as a function of profit taking. Clearly it is very easy to sit on both sides of the bull vs bear argument in numerous currencies and it is this melting pot of biases that seems likely to create the chop, so batten down the hatches and put on your tin hat, this week could be a write-off already unless you are very careful.

Tue Oct 14
1:30am AUD NAB Business Confidence
9:30am GBP CPI y/y
10:00am EUR German ZEW Economic Sentiment
10:00am EUR Industrial Production m/m
10:00am EUR ZEW Economic Sentiment

Wed Oct 15
12:30am AUD Westpac Consumer Sentiment
2:30am CNY CPI y/y
8:00am EUR ECB President Draghi Speaks
9:30am GBP Claimant Count Change
9:30am GBP Unemployment Rate
1:30pm USD Core Retail Sales m/m
1:30pm USD PPI m/m
1:30pm USD Retail Sales m/m
1:30pm USD Core PPI m/m
1:30pm USD Empire State Manufacturing Index
3:00pm USD Business Inventories m/m
7:00pm EUR ECB President Draghi Speaks

Thu Oct 16
10:00am EUR Final CPI y/y
1:00pm USD FOMC Member Plosser Speaks
1:30pm USD Unemployment Claims
2:15pm USD Industrial Production m/m
3:00pm USD Philly Fed Manufacturing Index
3:00pm USD FOMC Member Kocherlakota Speaks

Fri Oct 17
1:30pm USD Building Permits
1:30pm USD Fed Chair Yellen Speaks
1:30pm USD Housing Starts
2:55pm USD Prelim UoM Consumer Sentiment

(all times London time GMT+1)

If you have any questions or comments then feel free to tweet me @LFXMark

USD% Index

usd index sun 12 oct 14
Not a convincing return to the bullish channel until we have properly breached the cluster of moving averages that we opened the week hovering around.The comments from the Fed speakers certainly dampen rate hike expectations and this alone should see some consolidation of the dollar rally, but certainly not a reversal. We still have better fundamentals in the US than Europe and Japan so this should prevent us going too far. What seems more likely is ugly sideways range bound conditions between the previous multi-year high which would act as support and the recent USD% index highs in the 1.2500 region for EURUSD. I am neutral USD% in the short term, bullish long term

USD% Index Resistance (EURUSD support): EURUSD 1.2580, 1.2565, 1.2500
USD% Index Support (EURUSD support): EURUSD 1.2650, 1.2700, 1.2776

EUR% Index

eur index sun 12 oct 14
Last week’s pause for the dollar and the Euro saw us break out of the top and the bottom of the bearish channel, and it is this range that we could be stuck within now that there is far less clarity in the markets about rate expectations. It still seems crazy to talk about bullish Euro scenarios though so the longer term view should remain bearish but there is certainly an argument of sorts for a slight correction higher before further selling. I am neutral EUR% in the short term, bearish long term

EUR% Index Resistance: EURUSD 1.2714, 1.2800
EUR% Index Support: EURUSD 1.2582, 1.2500, 1.2456

JPY% Index

jpy index sun 12 oct 14
This is quite an important chart. We see the JPY% index breaking out from resistance away from a rejection of major support at the same time as the Nikkei 225 breaking below the orange ichimoku cloud. There is a chance that we could see some further stock consolidation now (finally) which unfortunately for the BOJ is a big Yen positive condition, along with US treasury buying due to risk aversion pushing yields lower, again a Yen / safe-haven positive action. This means that US dollar upside could be balanced and even slightly eclipsed by Yen upside so the sensible thing to do is sell EURJPY, which is indeed something that has been happening ever since we tested the purple major support level for the JPY% index. I remain bullish JPY% but only if stock don’t rally

JPY% Index Resistance (USDJPY Support): USDJPY 106.71, 106.00
JPY% Index Support (USDJPY Resistance): USDJPY 1.8.14, 108.72, 109.23

GBP% Index

gbp index sun 12 oct 14
Straight back into the bearish channel after a false break higher, the upside always was a disappointment after the rejection of key lows and as such we failed to even test the 400 hour moving average. UK data has suffered and is likely to continue to suffer as a result of the slowdown in Europe so the once bright spark of UK recovery is now a little duller. For my money it is still a longer term buy, but in this risk averse climate it is hard to be a pound bull. As such I expect some chop sideways due to the balanced arguments for buying and selling at the moment. I am neutral / bullish GBP%

GBP% Index Resistance: GBPUSD 1.6134, 1.6214
GBP% Index Support: GBPUSD 1.6100, 1.6060, 1.6000

AUD% Index

aud index sun 12 oct 14
I could be mad, but I still rather like this as a buy until we break to the downside below the red support trend line at 0.8639. If nobody is going to hike rates and Europe is not going to implement proper, government bond QE (for whatever reason) then the outcome is less FX market volatility eventually which should be Aussie positive due to the real interest rate differentials. China is finally lowering their expectations for growth, but I don’t think anybody really believed their forecasts anyway so this is probably priced in and they still remains the growth powerhouse compared to the Western and European peers. I am bullish AUD%

AUD% Index Resistance: AUDUSD 0.8770, 0.8900
AUD% Index Support: AUDUSD 0.8678, 0.8639

CHF% Index

chf index sun 12 oct 14
I’m reluctant to even mention this because it means a slightly Euro positive outlook which is crazy, but a break above the channel resistance for the CHF% index would be a very neat looking inverted head and shoulders. If the dollar sells then this is a possibility although it would probably be accompanied by EURCHF selling to prevent a Euro rally, which then would run into the SNB floor for EURCHF. The SNB have said that it has been months since they had to intervene in the FX market so perhaps the market may now like to test their resolve for a second time around. 0.9650 would be the level to break for USDCHF. I am bullish CHF% but only if accompanied by EURCHF upside

CHF% Index Resistance (USDCHF support): USDCHF 0.9613, 0.9659
CHF% Index Support (USDCHF resistance): USDCHF 0.9559, 0.9516, 0.9427

LittlefishFX Relative Currency Index Strength

All of the currency indexes used for this analysis are available as a NinjaTrader indicator from the link below. They are eight indexes, USD, EUR, JPY, GBP, AUD, CHF, CAD and NZD with each index made up of the remaining seven pairs, weighted in accordance with the distribution of global FX volume as measured by the Bank of International Settlements in their Triennial Survey.

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