Any fight for the buck to stay in control on Tuesday is once again being challenged on Wednesday thus far, with currencies bid across the board. Even the Yen and Kiwi which had been underperforming in recent trade have also managed to mount a comeback. There has been very little to talk about in terms of developments, but we have seen a drop in Australian new motor vehicle sales which continues to support our idea that the Australian economy is in the process of rolling over and should result in a much weaker local currency over the coming months. Meanwhile, Sterling remains very well bid, with the latest surge in the Pound coming from a slightly more hawkish than expected letter from the BOE governor to Chancellor Osborne. Nevertheless, we would recommend that GBP bulls proceed with caution as decent sell orders are reported between 1.6200-1.6300 and the weaker Nationwide consumer confidence could also help to diffuse any additional strength.
Moving on, the theme of global recovery prospects and overall risk aversion remains paramount to market price action and we continue to keep a close eye on developments in China. The Chinese central bank has been moving more aggressively of late and talk of additional monetary tightening should only dampen global macro sentiment. US equities have also closed lower on Tuesday and given the relative strength of late, any reversal here could open the door for a massive liquidation of risk positions. Elsewhere, the Swiss Franc has been finding some relative bids following some potentially hawkish comments from SNB Hildebrand who warns that if growth takes root, it will be difficult to maintain an expansive monetary policy.
Looking ahead, the European economic calendar is all about the UK, with the jobless claims change (-3.0k expected), claimant count rate (4.5% expected), and ILO unemployment rate (7.9% expected) all due at 9:30GMT, followed by the Bank of England inflation report at 10:30GMT. US equity futures and oil prices are tracking moderately higher, while gold prices trade flat.
EUR/USD: Rallies have by 1.3860 with the market finding some resistance by an ideal right shoulder top in the mid-1.3700's ahead of the latest setbacks. From here, the risks are still tilted to the downside, with an H&S topping formation opening the door for a fresh downside extension towards the 1.3200 area over the coming days. Any rallies should continue to be well capped ahead of 1.3700 with only a break back above the figure to give reason for concern.
USD/JPY: The market continues to remain extremely well bid on dips below 82.00, with the latest surge back above 83.00 really encouraging longer-term recovery prospects and opening the door for a potential break of key topside resistance by 84.50 over the coming days. Longer-term cyclical studies certainly suggest that the market could be poised for a major bullish reversal and we would look for a break and weekly close back above 84.50 to help confirm outlook. A break back below 82.00 would concern, while ultimately, only a back below 81.00 would negate.
GBP/USD: The market looks to have once again found a meaningful top by the 1.6300 barrier, with the latest setbacks resulting in a series of daily lower tops before Wednesday's minor reversal. From here we look for a break and close back below 1.6000 to confirm bias and accelerate declines back towards 1.5750 over the coming sessions. Current rallies should be well capped and only a daily close back above 1.6200 would give reason for concern.
USD/CHF: Although the longer-term market remains under some intense pressure with the latest declines stalling just shy of the late 2010 record lows at 0.9300, inability to establish fresh record lows followed by a break back above 0.9500 leaves us constructive with our outlook from here. Next key topside barriers come in by 0.9785 and we now look for a weekly close above this level to accelerate gains and open a fresh upside extension back above parity and towards 1.0070 medium-term resistance from December 2010. Any setbacks from here are expected to be well supported ahead of 0.9500.
Written by Joel Kruger, Technical Currency Strategist
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