With a light calendar today and low volumes, price action is still defined by choppy trading and lack of direction. In Australia, the RBA released the July Board Meeting minutes, where the central bank held rates at 3.00%. Leading up to Bernanke�s congressional testimony, the Chairman penned an article for the WSJ. In this morning article, he made it clear it was highly unlikely that tightening would occur for a while, given the uncertain economic conditions. In Canada , the BoC will meet today and is universally expected to keep rates at hold at 0.25%.
[B]News and Events:
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Risk appetite seems to be waning. The EURUSD slipped slightly from 1.4240 to 1.4185, before retracing back to 1.4235 as Europe opened. With a light economic calendar today and low volumes, price action is still defined by choppy trading and lack of direction. The USDJPY fell in early trading down to 93.80, before trending higher to 94.15. In Australia, the RBA released the July Board Meeting minutes, where the central bank held rates at 3.00%. Overall, the minutes provided little in the way of new information, but reiterated their upbeat assessment of the economy. The minutes stated that “early and substantial easing of both monetary and fiscal policy had been effective in supporting demand, which, if anything, had been more resilient than expected.” The effect on the AUD was muted, staying in the 0.8110 � 0.8180 range. Today, the markets will be watching Bernanke�s testimony, the BoC rate decisions and corporate earnings. Leading up to Bernanke�s congressional testimony, the Chairman penned an article for the WSJ. In this morning article, he made it clear, it was highly unlikely that tightening would occur for a while, given the uncertain economic conditions. However, just to keep the markets anticipating, he outlined in detail possible exit strategies, which would be considered. At today�s testimony we believe he will repeat information provided in the article and expect him to sound optimistic on growth and inflation, similar to the statement from the June FOMC minutes. However, we dont expect him to be in a rush to signal a timeframe for draining liquidity. In Canada , the BoC will meet today and is universally expected to keep rates at hold at 0.25%. What will keep participants on the edge of their seats will be the June policy meeting statement “If the unprecedentedly rapid rise in the Canadian dollar proves persistent, it could fully offset these positive factors (referring to economic recovery).” It is clear that the central bank is very concerned over CAD appreciation, as excessive strength poses a clear risk to the domestic economy. Yet since the June statement CAD has continued to strengthen. We expect members talk up the Canadian recovery story while strengthening their language and opening the door for a possible physically intervention (the probability of a direct intervention threat is low). A break of the USDCAD 1.0960 horizontal support will give scope to test 1.0785 year lows.
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Today’s Key Issues (time in GMT):[/B]
06:15 CHF Trade balance, CHF bn (nsa) Jun 2.00 exp
08:30 GBP PSNB, � bn Jun 15.5 exp, 19.9 prior
08:30 GBP PSNCR, � bn Jun 18.8 prior
13:00 CAD BoC interest rate announcement, % 0.25 exp, 0.25 prior
14:00 USD Fed Chairman Bernanke delivers semi-annual Monetary Policy Report to the House Financial Services Committee
[B]The Risk Today: [/B]
[B]EurUsd:[/B] Yesterday’s breakout above the 2 year downtrend and clearance of 1.415 propelled the market to the first hurdle at 1.4250. Any move higher looks like it could be met with short term RSI Divergence and the stochastics on the daily chart are at extremely overbought levels. Expect consolidation between 1.4150 and 1.4250 in the next 24 hours to work off these overbought conditions before making a fresh move.
[B]GbpUsd:[/B] The range traders “paradise” continues between 1.625 and 1.655. Although not quite as overbought as the Euro, Cable is seeing strong resistance at this 1.655 level and the long term downtrend at 1.66 is just above. Support right here at 1.6420, followed by 1.6381. Any pullbacks to the lower end of the range at 1.627 should see a strong bid.
[B]UsdJpy:[/B] Short term the pair has established an uptrend from the July 12th low at 91.80 and hit major resistance at 94.60. There is a mid trend channel which coincides with support at 93.86 and this level has caught a good bid so far this morning. Expect a retest of the 94.60 level short term and a possible clearance if the pair can clear RSI 65 on the 4 hour chart.
[B]UsdChf:[/B] No great changes on USD CHF. Yesterday’s break below key support at 1.0707 has been followed by a retest of the prior support and has so far acted as a new resistance. Fairly oversold on the 4 hour RSI and daily stochastics with good support at 1.6054 and 1.6033. Clearance of 1.0707 points towards 1.0764 where there is fairly hefty resistance so expect more range trading around these levels
[B]Resistance and Support:
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By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland