Morning Forex Report: USD Bid As Risk Sells Off

Market Commentary  

USD continued to rally strongly for a third consecutive session. It would seem the hawkish Fed speak combination by Bullard, Lacker and Lockhart post FOMC led many to re-position USD longs for an eventual December rate hike. Currently, the USD index DXY nears September’s highs of 96.61. The 50 day MA is also nearby at 96.38, a key support-turned resistance for the greenback after the surprise Chinese Yuan devaluation in August.

USD was broadly higher against most currencies except JPY. Equities were all in the red overnight, on a list of concerns on growth coming from ADB, IMF’s Lagarde. Fed’s Lockhart reiterated “comfortable with idea Fed will raise rate this year”; added that he didn’t want Fed to hike in the “teeth of volatility”.

EUR continued to fall amid broad USD strength overnight. Focus today on ECB’s Draghi Quarterly hearing. Speculation of more QE may pressure EUR lower. EUR was last hovering above 1.11 levels (another big figure lower each day for the last three)

GBP continued to fall as 2Y UK-US yield spread narrowed further. GBP weakness was also compounded by broad USD strength amid risk-off sentiment. Earlier BOE Chief Economist Halden said next move may be rate cut not hike (in contrast to what BOE members have said previously) as risk of inflation remaining “too low” and EM troubles could hurt growth. Reasons cited are pretty similar to Fed Chair Yellen’s reasons for delaying the rate hike.

USDJPY range bound. Domestic markets are closed until Wednesday for a series of public holidays and will re-open on Thursday. After slipping lower to below the 120-handle at 119.70 yesterday on safe-haven plays, USDJPY is back on the uptick around 120.30 likely due to the sell-off in the JPY vs.the EUR.

Technical  Commentary 

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

  • As 1.1150 acts as intraday resistance expect a sustained assault on stops below 1.11 opening a test of pivotal 1.1050 support failure here emboldens bears to target 1.08 next
  • Daily Order Flow bearish; OBV down, Linear Regression and Psychology bearish
  • Monitoring intraday price and Order Flow indicators on a test of 1.1050 or 1.1250

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

  • Now testing key support at 1.5330/50 a failure here opens the way down to to retest pivotal 1.5150 bids ahead of the psychological 1.50 level. Expect 1.54 to act as intraday resistance on upside reactions.
  • Daily Order Flow bullish; OBV down, Linear Regression and Psychology rejected at initial midpoint test from below
  • Monitoring intraday price action and Order Flow indicators on a test of 1.53 or 1.54

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

  • Range trade persists with domestic markets closed. Retest of 119 support attracts buyers but as 121 caps upside reaction expect a test of stops sub 119.
  • Daily Order Flow bearish; OBV sideways to down, Linear Regression and Psychology breaching midpoints from above
  • Monitoring intraday price action and Order Flow indicators on a test of 119 or 122

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

  • Expected rotation back to test 132 bids under way, failure at 132 solidifies bearish tone and targets 2015 lows next
  • Daily Order Flow bullish; OBV sideways to down, Linear Regression and Psychology pierce midpoints from above
  • Monitoring intraday price action and Order Flow indicators at 137 or 132

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