Last week’s headline risk events ECB & NFP acted as a further catalyst to support the USD surge higher, with a tight lipped Draghi and a broad recovery in the headline rate from the Employment report in the US, technical levels continues to erode as fundamentals dominated the money flow.
The USD completed an 11 week higher high closing print on Friday.Many tier one investment banks have revised USD projections higher with the disparity in data from EM Japan & Europe of set by continues robust figures out of the US. All eyes this week will turn to the FOMC minutes on Wednesday as the next main driver for the USD. I anticipate a period of digestion in the markets ahead of the minutes, with this consolidation likely resolved post minutes release for the best directional move to manifest.
The EURUSD continues to feel the brunt of the USD strength the divergent Central Bank policy a key driver which may be further confirmed in the minutes on Wednesday. Technically the EURUSD survived the first test of the psychologically important 1.25 level and 78.4% retracement from 2012 lows. It is reported that 1.25 harbours a significant amount of option related demand interest as those with sizeable structures are forced to delta hedge in the spot market.The initial technical focus this morning will be on the 1.2550/70 area where decent offers are reported with the large bid ahead of 1.25 still being worked on.
The USDJPY closed very strongly on Friday negating the potential of the Bearish reversal weekly candlestick pattern. We are currently witnessing some near term profit taking in the headline pair supported by the slide in the AUD and NZD. The next major catalyst for the JPY will be the BOJ this month and wether further easing is on the table. A further round of easing will be the next driver for another leg higher. Technically focus in the near term will be bulls seeking to challenge stops above last weeks high at 110 while bears will be looking for a retest and break of Friday’s lows to encourage further profit taking and prompt a fresh round of selling to test support at the recent broken highs.
The GBPUSD closed out last week at the lowest levels of the week, confusion over the next steps with respect to BOE policy and the USD positive tone. The bearish mood was further supported from comments over the weekend from UK Business Secretary who believes that GBP is ‘overvalued by 10-15%’. A light domestic data calendar this week once again suggests cable will take its lead from the USD. Technically Bears will be focused on pressuring support in the 1.5800/50 area. It is reported that offers are layered back through the psychological 1.60 level with the majority parked around the 1.6050 area which also denotes the September .