As Q3 earnings releases begin to wind down and their significance for risk appetite fades, the focus in FX markets returns to economic data – and despite today’s quiet schedule, we have a number of key issues in the week ahead. For the US, the most significant will be Thursday’s first reading of Q3 GDP where consensus estimates are calling for a 1.4% expansion QoQ, up from Q2’s 0.0% reading. The figure will be one of the most significant drivers of risk appetite in the coming months and given the spectacular miss from UK GDP numbers last week, it’s unlikely anyone will be complacent about the pace of recovery and the relatively high level of expectations. This week’s docket also features US Consumer Confidence (Tue), Durable Goods Orders and New Home Sales (Wed), rounded off by Friday’s PCE, Chicago PMI and U.Mich. Elsewhere we have central bank rate announcements out of New Zealand (Wed), Norway (Wed), and Japan (Fri); although the Norges Bank expected to be the most keenly anticipated event. The exceptionally strong economic data from Norway in recent months and increasingly hawkish rhetoric from central bank Governor Gjedrem has propelled NOK higher and prompted investors to start pricing in a series of hikes starting imminently at the next meeting. We agree NOK will join AUD as one of this year’s outperformers; however opportunities to get into the trade have been scarce thus far. Any indications that the path of rate rises will only be gradual may present pullbacks in the currency that we would look to buy. Wednesday will also see the release of Norway’s Unemployment rate, whilst Retail Sales are due Thursday. Both these sets of data have outstripped forecasts in the past few months, so again our strategy would be to buy NOK on any dips. The key releases for the week out of the Eurozone will be Consumer Confidence (Thu), CPI and Unemployment (Fri). Thus far the ECB have been resolute that current rates are appropriate and inflation expectations remain firmly anchored. Whilst EURUSD looks to have consolidated above the 1.5000 level, significant stops have built up just behind first resistance 1.5060 and any upside surprise in CPI (-0.1% YoY expected, -0.3% last) or indeed unexpected improvements in the other key releases could be the trigger to push the pair through to next upside target 1.5346.

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Today's Key Issues (time in GMT):

18:30 GBP BoE MPC member Adam Posen speaks on A non-monetarist approach to quantitative easing at Cass Business School, London

The Risk Today:

EurUsd The range trade continues to play out very nicely with shorts hitting the pair at 1.5046 and longs coming in at 1.5000. One would expect huge stops being built up on each side of this range, less so to the downside where longs are probably that little bit more confident and leaving their stops sub 1.4876 as they look for the move to 1.5346. 

GbpUsd We mentioned last week that the GBPUSD head and shoulders may well still be intact with 1.6663 as the level where sellers would be expected and after toying with the level for a couple of hours the pair has sold off a full 4 figures in less than 2 days. The next level of major support and uptrend buying is not expect until 1.6038 with some consolidation between 1.6272 and 1.6484 in the meantime. The more the pair consolidates before making another leg down the better the chances are of breaking the 10 month uptrend and the neckline down at 1.5724 / 5801. 

UsdJpy The pair is shaping up for a nice shorting opportunity in the coming days as it reaches a very significant resistance at 92.53 / 93.10 and a major downtrend line that comes from all the way back in May 2007. Expect the short term uptrend players to lighten up on their positions in the face of much congestion to the upside, only intraday players being able to play the long side safely from 90.60 / 86 entry. 

UsdChf A big test coming up for USDCHF today as the pair has is trapped between the downtrend line at 1.01 and the support at 1.0037. A break below this level will surely send the pair to parity whilst the bulls need to see a clearance of 1.0125 to justify adding to any current long positions. 

Resistance and Support

EURUSDGBPUSDUSDJPYUSDCHF
1.5346 1.6663 93.10 1.0250
1.5100 1.6570 92.50 1.0186
1.5046 1.6484 91.80 1.0123
1.5030 1.6295 91.80 1.0070
1.4905 1.6272 90.60 1.0037
1.4876 1.6221 88.70 1.0010
1.4842 1.6038 88.70 0.9889
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot