News and Events:

Friday's market reaction to the surprise non-farm payrolls July figures might signal a crucial shift for currencies and markets in general. US non-farm payrolls for July were better than expected, falling by -247k, while the unemployment rate dipped to 9.4% from 9.5%. After initial claims and a major US bank reset their forecast at -250k, participants were unsure where consensus lay and provided with high drama (volatility) on the release. But when the smoke cleared, it was the USD that continued to rally on the stronger US data. The recognized correlation between EURUSD and US 10yr yields appears to have decoupled and traders are now focusing on to the 2yr interest rate differential between Eurozone and US. This is a shift that suggests that positive economic data will now support the domestic currency. The USD benefiting from positive US recovery data is a theme not seen in a while (negative correlations between USD and risk entrenched itself post Lehman). What seems to have changed on Friday was that markets are looking at the growth differential story over just the risk appetite (risk aversion positive for USD) trade, which is important since most analysts agree that the US will be one of the first developed countries to recovery, which could have positive consequences for the USD. This shift also suggests that the US recovery is well on its way and that the Fed will begin (and has the economic cushion) to adjust rates higher due in time. The accompanying statement following the FOMC Wednesday meeting will be important, since it should provide direction. Overall, we expect a pinch of more optimism, no expansion of treasury purchase program and maintain their intention to keep rates unchanged at an 'exceptionally low and for an extended period'. There are a few reasons why this fragile trend might break down (we have seen it do so in the recent past) such as capital flows and oil prices, so this week's economic indicators like US industrial production and Retail sales will put the theory to the test. As the market struggles with the EURUSD / US 10yr dilemma, we still expect stronger than consensus data around the world to have positive impact on select risky currencies such as AUD, CAD, NZD and Ems currencies

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Today Key Issues:

  • 08:00 NOK CPI, % m/m (y/y)Jul -0.2 (2.6) exp
  • 08:00 NOK CPI-ATE, % m/m (y/y)Jul -0.2 (2.9) exp
  • 23:01 GBP RICS housing market survey, price balanceJul -4 exp, -18 prior
  • 23:01 GBP BRC retail sales monitor, total sales, % y/yJul 3.2 prior

The Risk Today:

EurUsd The Non Farm Payroll number has given the medium term bulls scope to add to their positions at 1.4161 major support and 6 month uptrend channel. 1.4051 is the next major level below and coincides with a sweet spot entry for the longs which played out so well before so big bids expected at that level. Upside resistance now at 1.4240 followed by 1.4291 and 1.4338.

GbpUsd Cable was mentioned last week as expected to have a major problem clearing 1.7029 and that 1.6663 would be a likely target area where we might see some long sterling players. Trading this morning slightly below that level it appears that accumulation has started around 1.6620 but the next support at 1.6546 is a more robust entry point, with further support at 1.6435 and 1.6381. Medium term uptrend still intact so expect long building over the coming days with 1.6272 as a crucial level for the bulls to hold.

UsdJpy After touching the 4 week uptrend around the 95.00 / 20 level just hours before the NFP numbers the longs have had a massive pay day with a 200 pip move higher by close of play in Europe. This move has pushed the pair outside of the major 2 year downtrend and up to resistance at 97.54 where the pair has flirted with breaking the top of the 4 week uptrend. The bulls would do well to exercise patience here waiting for a pullback to to 96.57 or a retest of the 2 year trend break at 96.16. Either way, the bulls are firmly in charge so shorting should be kept to intraday moves only.

UsdChf The pair is currently carving out a short term cup and handle so 1.0844 is a key level to watch for a break higher. The 60 minute chart is where all the action is taking place and worth noting that any move higher above the 1.0844 level will likely not be confirmed by the 60 minute RSI so an interesting chart with very clear levels to play on a 60 minute basis. Below there is support at 1.0797, 1.0764 and 1.0739 seems very attractive for those looking to trade the pair higher

EURUSD GBPUSD
USDJPY USDCHF
1.4338 1.6960 98.90 1.0945 
1.4291 1.6890 98.20 1.0890 
1.4240 1.6820 97.54 1.0844 
1.4189 1.6634 97.29 1.0828 
1.4161 1.6620 96.57 1.0797 
1.4051 1.6546 96.10 1.0764 
1.4000 1.6435 93.10 1.0739 
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot