Forex Institutional Research: Lloyds FX Daily
Key quotes from the Lloyds FX report:
The Fed minutes last night echoed recent comments by its members that the market was mispricing expectations around the next rate hike. June was mentioned extensively, but only as long as the data warranted. The data have been mixed recently and in the minutes they highlighted recent stability in the global economies, just as the latest Chinese data has turned down again. Fed speakers have also recently highlighted uncertainty around the UK referendum on Europe in June, and that outcome won’t be known until after their June meeting. So while the minutes suggest data trumps the risks outside of the US and a rate move in the summer is possible, we are aware that we have heard this before and like a game of Chinese whispers it pays to be mindful that the message can still change.
Intra-day volatility, within the broader range, is getting wild to say the least. Having seen 1.4525 resistance rejected a few times and against the back-drop of a strengthening USD, this rate was under pressure back to 1.44 before a straight line move to the 1.46 region. We have strong resistance in the 1.4675 region, with 1.48 above, and technically look for this area to cap for a grind back towards the 1.45 area. Medium-term we still believe the market should remain in a range between 1.4050/1.3980 (1.35 key below there) and the 1.48-1.4950 region. A move up through 1.50 is needed to suggest the 30-year support in the 1.40-1.35 has again held and technical analysis would look for a gradual move back towards the 1.60/1.65 over the longer term.
The market has extended the recent decline on the back of the Fed minutes. FX has a tendency to over-shoot in such an environment and so while bond markets are arguably more correctly priced now, we still see room for the EURUSD to push towards trend line support in the 1.1090 region. We are expecting that area to hold for another correction phase. 1.1290/1.1330 is intra-day resistance, with a move back through here negating the immediate downside momentum and shifting us technically into a neutral, range trading state of play. Longer-term we are correcting the downtrend from 1.60 and 1.40, having developed a base at 1.0450. It is not clear whether it will remain in a range, or see a C wave rally up to test monthly resistance in the 1.19-1.23 region. A move through 1.16/1.17 would open those upper levels, otherwise our bias is for a very gradual move back towards 1.1075, maybe 1.09.
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