Forex News and Events:

 Despite the JPY receding against the USD to trade above 87 levels today, the issue of the currency’s sharp appreciation in recent months is still a pertinent issue for Japanese policymakers. Just this morning, Prime Minister Hatoyama underlined that the strong JPY “cannot be left as it is”, although he conceded that he was unsure whether the strength of the currency was a temporary or lasting phenomenon. In our minds, the potential reward for long JPY trades is diminishing greatly; in spite of the powerful downtrend still being in play from a technical standpoint. The declines of USDJPY down toward 85 levels in the past weeks clearly had both MOF and BOJ members rattled, and it would be foolish to dismiss how aggressive Japanese policy makers would be in defending their currency. USDJPY around or below 83-85 levels is completely incompatible with Japan’s economic model which is still heavily reliant on exports, and we see this as a formidable floor to any further JPY appreciation. Indeed, we feel there is a high likelihood that 2010 will progressively emphasize the extent to which Japan’s economy is lagging behind in the global recovery, and reasons for holding JPY will sharply diminish.  

    Meanwhile, gold has continued to lurch higher; climbing through $1200 levels yesterday morning without much pause, and continuing to touch new highs this morning ($1217.25 so far). Gold prices have now appreciated some 27% in the last 3 months and it is looking prone to extremely nasty corrections as it progresses higher at such a pace. Nevertheless, the trend remains intact and demand remains stoked by rumours of further central bank purchases; meaning very little short interest is likely in the near term.  

With today’s data calendar being relatively light, it seems that equity market performance and technical drivers will be key; with our expectation being that EURUSD will continue to trade higher. The only significant risk event that could threaten the march from current levels (1.5090) to 1.5200 seems to be Friday’s Non Farm Payrolls; and we should get a first insight to which way the number may surprise with this afternoon’s ADP Employment Report. Consensus estimates are looking for a less dramatic -150k change in payrolls this month after October’s -203k decline. 

 

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Today's Key Issues (time in GMT):

10:00 EUR PPI, % m/m (y/y) Oct exp: 0.0 (-6.8) prev: -0.4 (-7.7)
13:15 USD Change in ADP private payrolls, thous Nov exp: -150 prev: -203

The Risk Today:

EurUsd The rangebound action continues with bids at 1.4815 support and offers around 1.5140. A potential double top is forming on the weekly chart with a neckline at 1.4625; only a close above 1.5145 would negate this. 

GbpUsd Once again cable is forming a massive compounded head and shoulders with 1.6272 as a neckline and 1.6663 as the top of the second shoulder. Core sterling shorts are likely to be considering the newly formed downtrend channels and this compound H&S as a very good medium term risk reward scenario so look for signs of weakness slightly before at 1.6618 and at the upper downtrend channel which is also at 1.6663. 

UsdJpy The break and hourly close above 87.10 has negated the downtrend on the hourly chart, but continued momentum higher has been limited. Expect consolidation for now between 85.85 support and 87.57 (yesterday's highs). 

UsdChf Last week’s low of 0.9937 should provide a good floor this week as it was the target from the channel breakdown and unfortunately I failed to see it or mention it. Prior to that level we have a decent bit of support building at 0.9993 but 1.0186 will likely cap this pair until some further bad news in risk assets rears it’s ugly head. Intraday players may well be looking at 1.0080 as a decent short entry level with stops above 1.0110. 

Resistance and Support

EURUSDGBPUSDUSDJPYUSDCHF
1.5300 1.6900 89.25 1.0280
1.5200 1.6880 88.20 1.0225
1.5145 1.6700 87.57 1.0186
1.5100 1.6675 87.30 0.9985
1.4950 1.6380 85.85 0.9980
1.4920 1.6335 84.46 0.9937
1.4870 1.6270 83.60 0.9900
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot