USD/CHF
Greenspan Replacement: Dollar markets lost ground on the day with traders paring back positions and flying for the safe haven Swissie. During an early afternoon press conference, the Bush administration made official mention of the candidate receiving their full backing, former Fed governor Ben Bernanke. Currently serving on the President's Council of Economic Advisors, Bernanke's current position was seen as a precursor to the top spot in similar fashion to when incumbent Chairman Greenspan served under President Ford in the same capacity. Although noted as a staunch inflation fighter, uncertainty still surrounded Bernanke's ability to adequately govern the board in line with Greenspan's past performance.
In Addition: Further declines in the currency pair past the 1.2900 figure were exacerbated through notable suggestions of potential Yuan revaluation in the near term with a slide in the U.S. bond markets. Subsequently, further speculation looks to ride the upcoming consumer confidence data.
Technically Speaking: With a golden cross forming above the 30 reference level, upside looks to be in the works for the near term given the resiliency of dollar bulls at the 50 percent fib level. Currently hovering the 1.2873 figure, upside resistance looks to come from the formidable 38.2 percent fib at 1.2922 with a break to the downside being capped at the 1.2825 floor.
USD/JPY
Yuan Revaluation Speculation: Traders pared back long held dollar positions on the session after statements by a Chinese central bank advisor suggested further changes in the central bank's revaluation efforts were inevitable. As a result, traders remembering the 2 percent slide in the major pair attempted to take advantage of the failed test to break through resistance at the option related 116 level. Additionally bolstering downside pressure on the major pair was notice of a major banking unloading a billion in Yen. With the Japanese currency acting as a proxy, continued notice of revaluation efforts look to add to short term strength.
Fundamentally Speaking: Contributing to overall optimism of the region, nationwide department sales for the month of September rose 0.8 percent against the previous decline of 0.7 percent. Additionally, supermarket sale declines slowed, falling only 1.9 percent compared to the previous 2.9. The most recent figures to come out of the world's second largest economy, the reports bolster previous notions of yen strength. As a result, traders will be anticipating data pitted for release at the end of the week which includes industrial production and consumer price reports.
Technically Speaking: Failing to break the option related ceiling at 116, the major pair declined on the day. Noticeable was the double top formed shortly after the European open as the price action broke through the 23.6 fib level at 115.45. Finding a temporary bottom at 115.12, the price has bounced back, hovering the 115.50 figure. Although the downward trend seems to be strengthening in the near term, look to each floor in providing a rough decline.
GBP/JPY
We'll Pass: Housing price data released today set back speculators that were bidding up the Pound in anticipation that a possible rate cut in Novemeber would be passed. Indicators released over the past weeks have lent themselves to talk that inflation is making a return appearance on the economic front. Retail sales in September rose for a second month to tip the scale on seperate reports showing consumer prices rose to their highest level since being recorded and housing prices fell to slowest pace in 14 months. Today's data is another hit to the housing sector and a blow for overall inflation expectations. At the last meeting on October 6, all nine MPC members voted to keep the benchmark rate at 4.50%. Further cuts tarnish this currencies' value as a carry trade against the Yen's near zero yield.
Technically Speaking: Friday's price action brought the pound to an 18-month high against the yen, but the quick retrace off of this level seems to say that a move higher is not meant to be. To breach the 205.40/66 level, a surge in pound bids would have to rejuvenate the two week rally that began on the 11th of this month. The more likely scenario has the pair continuing to make its way down to 203.16 which is the 38.2% fib of the recent run and the high level that contained the last runup.
Richard Lee is a Currency Strategist at FXCM.
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