Yesterday’s speech from Fed Chairman Ben Bernanke provided a quick shake up of risky asset longs for indolent markets that have grown accustomed to easy profits from improving global confidence and the assurance of low rates. Immediate attention was drawn to the statement that the Fed’s policy and underlying strength of the US economy “will help ensure that the dollar is strong” – a remark that seemed completely at odds with the recent theme that has driven FX markets, namely that the Fed commitment to low rates for the long term ensures a weak USD. Nevertheless, the bleak assessment of US economic activity, high unemployment and constrained flow of credit soon reassured investors they were on the same page, and EURUSD along with other risk assets quickly pared back initial losses. Gold continued to surge well into the evening to touch a high of $1143.67; a staggering 9.5% higher than where it traded 2 weeks ago, and silver also powered into the close at $18.40 levels, up 5% on the day. The idea that exceptionally low rates may be required for even longer than originally envisioned seems to ensure that risk-assets will continue to be supported going forward, and the USD may have further downside to explore after yesterday’s breach of key support in the DXY below 74.70.   Today’s European session kicked off with Swiss Retail Sales which revealed a -1.6% YoY drop in September, lower than the prior month’s -1.0% reading. The feeble data has alleviated some of the immediate pressure on EURCHF downside support at 1.5080, allowing the pair to recover above 1.5100. Thus far, neither SNB intervention nor official rhetoric has materialized on the levels of CHF strength in the past few days, but we feel the poor run of Swiss data coupled with continued threat of deflation should ward off the risk that the SNB changes their stance just yet.   UK CPI for October was slightly higher than estimates at 0.2% MoM, 1.5% YoY (forecasts: 0.1% MoM, 1.4% YoY); although this tick higher is perhaps unsurprising given the latest November Inflation Report that predicted a sharp rise in UK inflation numbers in the near term. From a technical perspective, GBPUSD looks a very bullish prospect, having taken out resistance at 1.6840-50 yesterday, looking to target 1.7000 upside resistance. The key focus for this pair however is yet to come, with tomorrow’s release of the BoE meeting minutes. The risks lie to the upside in our view, particularly if there is discussion of an end to the QE programme after this latest injection of GBP25bn is complete.


Today's Key Issues (time in GMT):

10:00 EUR Trade balance, € bn (sa) Sep exp: --- prev: 1.0
13:30 USD PPI, % m/m (y/y) Oct exp: 0.5 (-1.8) prev: -0.6 (-4.8)
13:30 USD Core PPI, % m/m (y/y) Oct exp: 0.1 (1.4) prev: -0.1 (1.8)
14:15 USD Industrial production, % m/m Oct exp: 0.4 prev: 0.7
14:15 USD Capacity utilization, % Oct exp: 70.8 prev: 70.5
18:00 USD NAHB housing index Nov exp: 19 prev: 18

The Risk Today:

EurUsd The pair had a largely directionless day yesterday between, dropping to a low of 1.4879 after Bernanke's speech, but rebounding quickly off 1.4880 support. EURUSD now seems to be consolidating in a channel between 1.4821-1.5062. Only a break above 1.5062 would confirm further bullish momentum towards 1.5200-1.5300 area. 

GbpUsd GBPUSD has continued it’s bullish momentum, breaking higher through the 1.6842 resistance level yesterday, but was unable to close above there. It has since regained that territory after the CPI figures, but stalled at 1.6873 just ahead of 1.6900 resistance. Tomorrow’s BoE meeting will be the key event to watch for a catalyst to take GBPUSD to test 1.7014 key resistance levels, but for now, good support should keep it elevated above 1.6750. 

UsdJpy USDJPY finally broke the 89.18 support level of its descending triangle, which looks to target next downside support at 88.00. Resistance from the downtrend line around 90.20 should provide good supply to cap any rallies, however, we need a consistent move below 88.80 to continue the bearish scenario. Major support lies at 87.15 below. 

UsdChf The pair continues to trade in its 1.0030-1.0190 range and we expect this pattern to remain until a clear break either side is confirmed. For now, USD selling puts the bias of pressure on the downside, where a break of 1.0030 key support would inevitably take us through to parity and resumption of the longer term downtrend possibly indicating the next leg down to 0.9890 support. 

Resistance and Support

1.5100 1.7400 93.50 1.0290
1.5062 1.7041 91.50 1.0200
1.5046 1.6900 90.05 1.0190
1.4945 1.6870 88.95 1.0105
1.4880 1.6740 88.80 1.0034
1.4810 1.6515 88.00 1.0000
1.4626 1.6460 87.15 0.9890
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot