FX - Currencies Well Bid in Early Week As US Dollar Back Under Pressure

The markets continue to react to the much softer than expected US NFP report from Friday, with the number still shocking even after investors had already been anticipating weakness following the earlier release of ADP. Despite the uptick in risk aversion on the back of this development, currencies have been very well bid across the board, with even the higher yielding commodity bloc finding renewed strength. The Franc and Yen have been very well bid, with UD/CHF to yet another fresh record low and USD/JPY threatening a move back below 80.00. Talk of QE3 has resurfaced and while the likelihood for another wave of monetary policy accommodation is unlikely at this point, the weakness in the US data has been enough to inspire some fresh bets on these prospects.

Fed Chair Bernanke is slated to speak on Tuesday and many will be watching to see whether any additional clarity will be offered on the matter. The Euro has most recently established back above 1.4600 with the single currency also finding some relative bids after the EU/IMF agreed to release the next tranche of bailout funds to Greece. Meanwhile, the Pound has been lagging a bit with the UK currency weighed down by its economies own soft data which includes weaker services and manufacturing PMIs and discouraging housing indicators. On the data front, Australia jobs ads were softer, while the TD inflation gauge seemed to be contained. This has managed to stall the rebound in the antipodean a bit.

Looking ahead, the economic calendar in Europe is exceptionally light, with the only notable releases coming from Eurozone sentix and PPI. Canadian data then dominates North American trade, with building permits, and Ivey PMI standing out. On the official circuit, Fed Fisher is slated to speak much later in the day at 21:30GMT. US equity futures are tracking slightly lower, while commodities trade relatively unchanged from Thursday’s closing levels.

ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD: The market is once again very well bid with the latest gains managing to accelerate beyond resistance in the lower 1.4500’s and into the 1.4600’s thus far. From here, we still retain an overall bearish bias, but would look for gains to potentially extend some more towards the 78.6% fib retrace off of the major 1.4940-1.3970 move by 1.4730 before considering the possibility for bearish resumption. Back below 1.4450 would now be required to relieve immediate topside pressures.

USD/JPY: After undergoing a fairly intense drop off from the 85.50 area several days back, the market looks to have finally found some support in the 80.00’s and could be in the process of carving out some form of a base. Look for setbacks to continue to be well supported by 80.00 with only a close back below 79.50 to give reason for concern. From here we see the risks for a fresh upside extension back towards the recent range highs at 85.50 over the coming weeks.

GBP/USD: Rallies have been very well capped in the 1.6500’s with the market looking like it wants to carve out a fresh lower top by 1.6550 ahead of the next downside extension below 1.6060. A break back below 1.6285 will reaffirm outlook and accelerate declines, while only back above 1.6550 negates and gives reason for pause.

USD/CHF: The latest minor recovery has proved to be just that, with the market finding a fresh lower top ahead of 0.9000 in favor of a drop to yet another record low below 0.8400. Daily studies are however still looking quite stretched to us, and we continue to like the idea of taking shots at buying in anticipation of a major base. Look for a break and close back above 0.8450 to encourage bullish reversal prospects, while a drop below 0.8300 delays.

Written by Joel Kruger, Technical Currency Strategist

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