GBP’s outperformance in the last few sessions has been largely attributed to the idea that the BoE may not be looking to expand its quantitative easing programme at the next MPC meeting in November. Much of this speculation was triggered by an FT article with BoE’s Fisher who stated that the QE programme was having the “scale and speed of impact that we would have hoped for when we started”. However, the market’s interpretation that this meant the BoE may halt QE was dealt a blow over the weekend after an article in The Sunday Times cited an interview with BoE’s Adam Posen which implied he might back further asset purchases. Clearly the fate of GBP in the medium term hinges principally on the scale and duration of QE, and we still believe this will be expanded at the November meeting by £25bn. With the market looking slightly cleaner in terms of positioning since the correction of the past few days, we believe this presents a good opportunity to re-short GBPUSD eyeing a return to sub-1.6000 levels. The BoJ Minutes were released overnight, indicating the Japanese economy is recovering, and that members felt the effects of the central banks’ funding support was losing its efficacy as corporate funding conditions improved, perhaps hinting that they may let the programme expire in December. However the minutes also revealed that the BoJ had come under pressure from some cabinet members about the risks of withdrawing stimulus too early. The last few weeks since the DPJ administration came to power have been a muddle of rhetoric about JPY strength but we still feel that any aim for a strong JPY would be a little too radical a reversal of historic trends. The back track in verbal intervention put a near-term floor on USDJPY for now, but we remain wary of further market-moving commentary from Japanese policy-makers going forward. With a barren data calendar for the rest of the day (Canadian Int’l Securities Transactions and US NAHB Housing Index being the only releases), the markets will likely track equity and commodity markets for direction. The main earnings release today will be Apple Inc (after market), and we also have Bernanke speaking this afternoon on the Financial Crisis in Asia.

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Today's Key Issues (time in GMT):

14:30 CAD Int'l Securities Transactions Aug, CAD bn exp: 3.000 prev: 0.351
17:00 USD NAHB housing index Oct exp: 20 prev: 19

The Risk Today:

 EurUsd More consolidation on EURUSD with no indication of higher highs or lower lows taking charge in the last few days. The lower boundary of the range sits clearly at 1.4842 and the top end at 1.4967, with 1.4876 and 1.4921 as intraday pullback levels so there is plenty of money to be made by playing the 120 pip range for as long as it lasts. A break outside of either of those outer ranges will obviously trigger plenty of stops, particularly to the upside, so tread carefully.

  GbpUsdAs with EURUSD, the consolidation continues on GBPUSD as the market awaits some significant numbers to serve as a catalyst. Both pairs seem to be taking a lead from the equities more so than ever and with very little corporate news on the cards for today (bar Apple after market), only talk of further Quantitative Easing in the UK (another 25BN) is likely to give the pair a kick. A break below 1.6221 should pave the way for fresh selling down to 1.6127 and 1.6038 thereafter.

  UsdJpyWhile USDJPY is in a medium term downtrend where we would expect new selling around 91.80 and 92.50, short term it is worth highlighting the continued uptrend that can take us there. 89.40 - 89.70 looks like the level of interest for longs as the 14 day uptrend comes into play in conjunction with a retest of the 10 week downtrend breakout and an area of mild support.

  UsdChfWe mentioned on Friday that the downtrend was still intact and that 1.0250 would be a fairly decent resistance level. Once again the pair has been even weaker than expected as it couldn't even squeeze past 1.0230 before falling back into the downtrend. 1.0123 must hold today or parity looks ever closer. Only a clear move above that 1.0250 resistance can be viewed as bullish for the pair. Any bounces from 1.0123 are likely to be met with fresh selling at 1.0186.

Resistance and Support

EURUSDGBPUSDUSDJPYUSDCHF
1.53461.646893.101.0360
1.50001.640092.501.0250
1.49671.638191.801.0186
1.49401.627590.401.0140
1.48761.622189.701.0123
1.48421.612788.591.0037
1.47201.603888.001.0010
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot