Rate Disappointment vs Fundamental Disappointment

Tuesday saw two milestones. Firstly,dreadful UK CPI at 1.2% vs 1.4% expected. Secondly, a worryingly low ZEW survey. Even so, the dollar rally was rather mild, failing to break the 200 hour moving average once again and remaining outside the recently broken bullish channel. The yen continued it’s rally and stocks unsurprisingly fell. As such we remain in consolidation mode in dollar terms at least until the Yen stops rallying, which doesn’t seem likely until the poor data stops, key resistance is met or the BOJ wade in with new stimulus.

Wednesday sees a busy day fundamentally. We have Draghi on the wires twice who will no doubt do his best to secure a low Euro now that the Fed are signalling concern about a rate hike. We also have US retail sales and the Empire State Manufacturing Index, all of which have the potential to be volatile in these twitchy conditions. US retail sales have been a concern recently however the manufacturing sector has posted some strong numbers.

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USD% Index

usd index tues 14 oct 14
The drop down to support was bought and we rallied all the way back up to the recently broken bullish channel support turned resistance which was also a confluence of moving average resistance, potentially making EURUSD 1.2636 a key level to break through. Our view of a choppy range bound dollar seems likely to hold for the time being with EURUSD 1.2800 to 1.2500 the range to break out of. There is now a lot of focus on the ECB again and the likelihood of sovereign bond buying. If we get a hint that Buba’s Weidman is a thorn in Draghi’s side regarding the matter then we could see upside for the Euro in the short term as the market reprices Fed rate hike disappointment and a growing confidence of no “real” QE from the ECB. I am neutral / bearish USD%

USD% Index Resistance (EURUSD support): EURUSD 1.2636, 1.2562, 1.2500
USD% Index Support (EURUSD support): EURUSD 1.2700, 1.2744, 1.2790

EUR% Index

eur index tues 14 oct 14
A messy push back inside the bearish channel may not last due to the fact we are struggling to break bellow the 200 hour moving average yet again even with shocking data. This makes me suspicious that we could be seeing some profit taking soaking up the data related offers. Much like the dollar outlook, for the time being the direction seems to be sideways for the Euro. I am neutral / bullish EUR% in the short term

EUR% Index Resistance: EURUSD 1.2793, 1.2800
EUR% Index Support: EURUSD 1.2650, 1.2545, 1.2500

JPY% Index

jpy index tues 14 oct 14
The Yen and the pound were the main focus of the market on Tuesday. The yen ground it’s way higher quite slowly while the pound crashed through the floor. Unsurprisingly GBPJPY was a big mover. Nikkei 225 futures seem to be reducing the pace of their descent and in need of a slight rally back to resistance, which could see the yen push lower back to support again and see USDJPY 107.40 a potential level to watch. Overall, unless we start to challenge the 100 and 200 hour moving averages at 107.68 and 108.31 respectively then the bullish JPY trend remains intact. I remain bullish JPY% but only if stock don’t rally

JPY% Index Resistance (USDJPY Support): USDJPY 106.76, 106.00
JPY% Index Support (USDJPY Resistance): USDJPY 107.40, 107.90, 108.31

GBP% Index

gbp index tues 14 oct 14
Ouch, the pound has been walloped through key support following the terrible CPI release, made worse by a profit taking rally from key 0.7770 support for EURGBP still in full flow. This could even see EURUSD consolidate higher unless the dollar regains it’s mojo although EURGBP is fast approaching key resistance and no matter what anybody says, Europe is still in a bigger mess than the UK at the moment so this level could be significant for the overall pound outlook and cap the longer term downside for the time being. There is no escaping how poor the outlook for fundamentals are at the moment though and the UK is no exception. Unless the numbers get better soon then we deserve to be much lower once again. I am bearish GBP%

GBP% Index Resistance: GBPUSD 1.5955, 1.6016, 1.6125
GBP% Index Support: GBPUSD 1.5900, 1.5813, 1.5800

AUD% Index

aud index tues 14 oct 14
The Australian dollar doesn’t currently have much of an agenda so is being pushed around by the dollar and whatever it is doing. We failed to make it through resistance for the AUD% index although have not yet tested support in the AUDUSD 0.8643 region and it seems likely that if we get there then a range play could be a favourable strategy making longs an option from there so long as volatility is not too wild. I am neutral / bearish AUD% until we break the expanding triangle

AUD% Index Resistance: AUDUSD 0.9772, 0.8800, 0.8939
AUD% Index Support: AUDUSD 0.8643, 0.8542

CHF% Index

chf index tues 14 oct 14
I still favour upside for the franc although this is purely a counter trend view overall due to the developments at the Fed. Nevertheless we could see the channel broken to the upside through the key level of 0.9500 for USDCHF, in which case there is the possibility of a mild retracement as a result of dollar consolidation more than anything else.I am neutral / bullish CHF%

CHF% Index Resistance (USDCHF support): USDCHF 0.9500, 0.9450
CHF% Index Support (USDCHF resistance): USDCHF 0.9547, 0.9589

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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