Yesterday’s late earnings release from Intel joins an ever increasing list of US corporates who have beaten analyst expectations for Q3 earnings; sending the USD plummeting to its lowest levels in 14 months (DXY low 75.50). The reaction from currencies and indeed commodities today seems to suggest that the USD’s fate has already been determined, whatever happens in the remainder of the risk events today – EURUSD looks to have broken upside resistance at 1.4876, opening up the next target above 1.5300, and the DXY has very little to catch its fall until we hit 74.40 levels. The fact is, Q3 earnings were seen as one of the major potential triggers of a correction in this ubiquitous risk-appetite up trade, and thus far, all releases have not only met, but exceeded forecasts. That investors are still selling USD with the same vigour today is symptomatic of the conclusion in most people’s minds that earnings figures are unlikely to pose any threat whatsoever based on how the cards have fallen so far. Asian and European equity indices are broadly higher, and gold has hit new all-time highs at $1070.80 already this morning. Nevertheless, it is still worth watching as we get the first of the major banks, JPMorgan reporting before today’s market open – the solidity of the financial system is likely to remain under intense scrutiny for the duration of this recovery, any shocks here could undermine the current bullish euphoria. Later today we will also see the release of US Retail Sales for Sep and FOMC Minutes; although the Retail Sales Figures are a significant data point (-2.1% exp. 2.7% prior), expectations are low after last month’s cash-for-clunkers enhanced figure, and the likelihood is that a good print will only fuel more bullish sentiment, whilst a lower print would just present better levels for investors to re-short the USD. The balance of risks for the FOMC meeting are also conducive to further USD weakness, as the improvement in global economic data means there is little chance of any bearish statements, and with each passing meeting the probability increases that the Fed will signal an end to stimulus measures. This morning’s data calendar in Europe features Eurozone Industrial Production for Aug (1.2% expected, -0.3% prior) and UK ILO Unemployment Rate (8.0% expected, 7.9% prior), however with USD moves being the overpowering driver of most major currency pairs, we believe any influence of these numbers will be diluted by the broader moves dictated by risk sentiment.
Today's Key Issues (time in GMT):
08:30 GBP Claimant count unemployment, change K Sep exp: 25.0 prev: 24.4
08:30 GBP ILO unemployment rate, % Aug exp: 8.0 prev: 7.9
08:30 GBP Average earnings growth, % 3m y/y Aug exp: 1.4 prev: 1.7
08:30 GBP Core average earnings growth, % 3m y/y Aug exp: 1.9 prev: 2.2
09:00 EUR Industrial production, % m/m (y/y wda) Aug exp: 1.2 (-15.5) prev: -0.3 (-15.9)
12:30 USD Retail sales, % m/m (y/y) Sep exp: -2.1 (-6.0) prev: 2.7 (-5.3)
12:30 USD Import prices, % m/m (y/y) Sep exp: 0.2 (-11.6) prev: 2.0 (-15.0)
14:00 USD Business inventories, % m/m (y/y) Aug exp: -0.8 (-12.6) prev: -1.1 (-11.9)
18:00 USD FOMC Minutes of September Meeting
The Risk Today:
EurUsd Yesterday we said that we expected 1.4876 to provide an intraday resistance level followed by a brief pause. After hitting 1.48758 the pair settled back for the rest of the day to trade around the 1.4805/15 mark where the bulls waited patiently for the Intel numbers. Having beaten the estimates in every aspect - net income, revenue and margins - risk appetite is fully intact overnight and the EUR bulls have now taken the pair through the major resistance at 1.4876. Next stop from here is 1.4967 and thereafter 1.5346. The only hope for the bears here is that the RSI rolls over on a 4 hour chart and gets back below the downtrend line asap, otherwise one has to step aside and let the bulls take it to wherever they like.
GbpUsd After flirting with the last of the support levels at 1.5724 yesterday morning, the pair is holding firm and catching a bid from the uptrend players once again. Obvious resistance on the 4 hourly chart at 1.6127, should attract some sellers intraday but that will be the pair's 3rd visit to the level and the chances of breaking through increase on any visits thereafter. Should we break through there the pair would face congestion between 1.6272 and 1.6381 with long term GBP sellers likely to take advantage. With earnings out from JPM and Morgan Stanley today, we will be posting more intraday analysis as things progress.
UsdJpy We mentioned yesterday that the 10 week downtrend on USDJPY was still playing out nicely and that 90.00 level represented a decent short entry. After touching 90.03 intraday the pair has now fallen to the 89.00 region and the downtrend is obviously still intact and deserves respect. 89.70 now looks like the area to attract new shorts with 88.59 and 88.23 providing support below. Only a break above 90.20 puts this downtrend in jeopardy.
UsdChf Looking at the big picture on USD CHF, there are some interesting developments for the bears. Firstly, the pair is this morning attempting to breakdown the support at 1.0186, which if successful should take the pair close to parity at 1.0037. This is also the target from the descending triangle that we mentioned some weeks ago so there is likely to be some mass short covering around that level. The only hope here in the short term for the USD bulls is the RSI divergence on a daily chart and the stochastics are sitting in an oversold zone but there is every chance that the pair can hit the parity target first and the divergence and oversold long players come in at that 1.0037 level. Watch for a break of the 4 hourly RSI below 30 to confirm further weakness as this may occur before the price action itself.
Resistance and Support:
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot