Yesterday’s surprise Alcoa profits commenced a fresh wave of optimism in the markets, as the largest Aluminium producer in the US managed to defy forecasts for a fourth quarterly loss and post a profit of 7 cents per share. FX has reacted in the anticipated way by aggressively selling the USD (DXY 75.95) and the euphoria has continued since; as Australian Unemployment levels unexpectedly fell this month (5.7% vs. 6.0% expected, 5.8% prior), dragging most G10 currencies higher. It seems a clear indicator of the market psyche that these reactions come in spite of the fact Alcoa’s surprise profit was for the most part due to accelerated cost-cutting rather than an increase in global demand (which they say is down 6% in 2009; while global demand excl. China is down 10%). The USD-selling mentality was even robust enough to shrug off overnight comment’s from NZ’s Finance Minister Bill English that he was uncomfortable with the strength of NZD – rhetoric that would ordinarily elicit a sharp sell-off. This is the power of the risk appetite = USD lower trade, and with poor data no longer providing much traction for USD rallies, it seems that the rout could continue. Today’s key risk events are sure to be the BoE and ECB rate meetings. The Bank of England will be eyed closely for any decisions or indications of the scale of QE going forward, as an increase in stimulus measures would be severely detrimental to GBP. After the RBA’s surprise hike, and continued outperformance of the Norwegian economy in the last fortnight, markets are growing accustomed to hawkish rhetoric and improved assessments of the global economy. But the UK remains a laggard and if perceived to need further stimulus, GBP could well forfeit its gains against the USD. The ECB is also unlikely to change rates today, but here the risks lie in the press conference; ECB members have been vocal in recent weeks about adverse currency moves and their partiality to a strong USD; even if not mentioned in the official statement, Trichet may have to address FX if asked in the Q&A. Nevertheless, if there is anything to be gleaned from the market’s reaction to the NZ strength comments earlier today, it may well be that EUR carries on regardless as USD weakness remains the overriding theme.

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Today's Key Issues (time in GMT):

10:00 EUR Germany: Industrial production, % m/m (y/y) Aug exp: 1.9 (-17.2) prev: -0.9 (-16.9)
12:30 USD US: Initial jobless claims, thous (4w ma) 03-Oct exp: 545 (545) prev: 551 (564)
14:00 USD US: Wholesale inventories, %m/m (%y/y) Aug exp: -1.0 (-13.7) prev: -1.4 (-12.8)

The Risk Today:

 EurUsd The head and shoulders is now completely negated as the pair rallies this morning to the resistance at 1.4786. There is once again significant RSI divergence on the 4 hour chart at this level (as we had on the first visit to this resistance zone) so a brief pause can be expected but we have to face the fact that a break above here targets 1.4845 and thereafter the major resistance at 1.4876. The 10 month uptrend now comes in at around 1.4570 so expect any weakness to be met by fresh demand at those levels. Support before that at 1.4684 and 1.4615.

GbpUsd GBP is has tested the resistance above 1.6050 as systems continue to buy GBP; GBPUSD briefly spiked through to a high of 1.5972 before paring back to 1.6040. Stops are expected at 1.6080 on the upside but bearish bias remians and 1.6100/30 and 1.6190 (the 21 dma) look to be good levels to fade if seen, targetting 1.5800.

UsdJpy We spoke a couple of days ago about the symmetrical triangle on USD JPY and over the last 48 hours it has played out with amazing precision, no doubt bringing some day traders back into the action of what was starting to become a rather boring picture. The pair has found good support at the lower downtrend channel of the entire 6 month down move around the 88.23 level but a break lower would be targetting the 14 year low of 87.07. Intraday shorts may be expected at 89.17 on the corner of the triangle and mid channel downtrend.

UsdChf A very simple picture on USD CHF right now with the very last hopes of an uptrend hanging on to support and the 3 week uptrend at 1.0237. A break below 1.0237 targets a revisit to the low at 1.0186. The 4 day downtrend channel and resistance at 1.0326 will likely pull shorts into the pair at that level so there is some decent 90 pip range trading to be had here. 

Resistance and Support:

EURUSDGBPUSDUSDJPYUSDCHF
1.5300 1.6235 91.10 1.0425
1.4845 1.6135 90.50 1.0360
1.4786 1.6050 89.85 1.0300
1.4770 1.6040 88.25 1.0260
1.4570 1.5815 88.00 1.0245
1.4510 1.5770 87.10 1.0225
1.4460 1.5724 81.85 1.0190
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot