Forex News and Events:
Swiss Inflation Data Lessens The Case For CHF Intervention The pervading feeling in the market today is that currencies are likely to be extremely static and range-bound ahead of this afternoon’s Non Farm Payrolls and US Unemployment figures. Asian equities have been mixed on the day, bringing to an end the positive run of form from earlier in the week; and European indices have started the day slightly lower – meaning most risk assets have pared back from the stronger end of their ranges against the USD. The only notable morning release has been the Swiss CPI for November that came out slightly above consensus at 0.2% MoM, 0.0% YoY (expectations: 0.0% MoM, -0.1% YoY); a reading that we feel is compelling enough reason to steer clear of long EURCHF trades which rely on SNB intervention. It has been repeatedly asserted by members like Jordan and Roth that deflation risks remain the most significant focus for their policy stance, and the latest uptick back towards normalization means that the arguments for weakening the CHF through intervention should be diminished. Ahead of this afternoon’s Non-Farm Payrolls, we have time to reflect on what the significance of good or bad data infers for the direction of the USD. It is widely anticipated that today will be the 23rd straight month of negative changes in the payrolls, but whether the -125k consensus surprises to the upside or downside, what is far less clear is what investors will do with the USD in the aftermath. We feel that for the market to maintain its comfortable trend of USD selling against risk assets and currencies, it will be important for US data to remain in this benign sweet spot. Although EURUSD has benefitted from disappointing US economic releases of late, it is important that the backdrop of US fundamentals does not deteriorate to an extent that we risk a double dip scenario. Conversely, markets will continue to hope that the upside surprises are not so encouraging that we prompt an early shift in policy stance from the FOMC and jeopardize the prospect of low rates throughout 2010. Unfortunately for FX traders looking for excitement today; the most likely scenario for the employment data will be a brief bout of volatility just after the release, followed by FX markets subsequently reverting to very sluggish trading going into the weekend.
Today's Key Issues (time in GMT):
13:30 CAD Unemployment rate, % Nov exp: 8.6 prev: 8.6
13:30 USD Change in nonfarm payrolls, thous Nov exp: -125 prev: -190
13:30 USD Unemployment rate, % Nov exp: 10.2 prev: 10.2
15:00 USD Factory orders, % m/m (y/y) Oct exp: 0.0 prev: 0.9
The Risk Today:
EurUsd We said on Wednesday that the majors were just drifting around and with an in-line initial jobless claims number yesterday that picture has not changed. Maybe we have spoiled ourselves in the last 2 years with excess volatility so 60 pip daily moves just don’t cut any excitement. Either way, we have Non Farm Payrolls out at 13:30 GMT today along with the US Unemployment rate so hopefully we will see some action later this afternoon. In the last 48 hours the breakout of the triangle at 1.5046 has started to behave as a support. This is the type of action one would expect to see before the breakout move higher so if one was to ignore the daily RSI divergence, the pair would look good for a long entry with stops below yesterday’s low. The daily RSI is working into a tight triangle and unfortunately that triangle doesn’t come to an end until the 31st December. However, keep a close eye on it as it may well give us an early indication of the next major move. For the time being, intraday traders will likely be shorting as close to yesterday’s high as possible with a stop just above and intraday longs doing the same on the other side, getting long as close to yesterday’s low as possible with stops just below. Range trading likely until 13:30 GMT.
GbpUsd We said on Wednesday that the pair would likely attract short sellers as close to 1.6751 as possible, with stops just above and short covering at 1.6546. Having followed that scenario rather nicely it leaves the short sellers with their powder dry, ready to re-enter around 1.6700 and probably looking for the lower support of 1.6486 for any first rounds of short covering. Medium term long entries now expected at 1.6341 where the 12 month uptrend channel gives early support to the neckline just below at 1.6272
UsdJpy So far so good for the short entry level at 88.01 / 25, as the pair bangs its head on the top of a newly formed rising wedge. Despite having now broken the 8 week downtrend, there has been little follow through to the upside due to heavy resistance just ahead at 88.59 and the rising wedge breakdown would kick in should the pair close on an hourly basis below 88.01. Therefore watch for a move below this level as it would indicate another small round of USD weakness before likely catching a bid at 87.07. Intraday longs can continue to use the 7 day uptrend with extremy tight stops below but 88.59 looks like the celing in the short term.
UsdChf The bids at 0.9993 have moved themselves slightly lower and therefore the triangle that we discussed earlier this week is now slightly shallower and the target (should the triangle breakdown) moves from 0.9811 up to 0.9871. There is little to do here before the US unemploymenat data at 13:30 GMT, apart from play the range of the corner of the triangle. However, that range is extremely tight - somewhere in the region of 30 pips - so an early lunch might be the way forward in anticipation of a very busy afternoon. A break lower from the triangle down to 0.9937, followed by a bounce to 0.9974 will provide a text book short entry should these numbers pave the way for further USD weakness. A break higher will meet its first resistance at 1.0062 / 1.0081
Resistance and Support
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot