EUR/USD
IFO To The Upside: Rising to a five year high, today's German Ifo Institute survey rose to a reading of 98.9 compared to earlier expectations of a 96.4, bolstering notions that aspects of the euro zone economy are indeed turning around. Addiitonally contributing to further euro bullishness, today's import price index vaulted higher for the month of September. Rising 4.7 percent on an annualized basis in the previous month, inflation rose 5.1 percent. Coupled together, traders bid the underlying major higher on rising speculation that interest rates in the region may have to rise earlier than expected. Sparking current sentiment were earlier suggestions by central bankers including Chief Economist Otmar Issing that low rates look to rise “inevitably”
U.S. Consumers To The Downside: Conversely, dipping to a two year low, U.S. consumer confidence declined against expectations that a recovery from Hurricanes Katrina and Rita would bolster domestic demand. The Conference Board's October survey fell to 85, below estimates of 88.1 and below the previously revised September figure of 87.5. Notably, higher gasoline prices continued to pressure consumers, ultimately dampening consumption.
Technically Speaking: After vaulting from the 1.1950 figure, the euro major rose above the 1.2100 level briefly. Now, 184 pips higher, the price action looks to temporarily dip before any further upward direction can be made. Near term floors exist at 1.2050 with a break bringing an inevitable test of the 1.2025 (38.2 percent fib level).
GBP/USD
Stable Interest Rates: Even with the exit of one of the more hawkish members of the Bank of England, speculation is now running higher that an interest rate cut will not be needed till further assessment can be made going into 2006. Running on previous momentum from upbeat retail sales figures, traders are intiating long positions as the housing market shows signs of stabilization along with continually lofty inflationary levels. Nonetheless, improvements in October's industrial trends survey look to be needed before a confirmed upward bias in the underlying major can be confirmed.
Bush's Choice Is Bernanke: Although noted yesterday in a conference, confirmations of Bernanke's ascension to the role of Fed chairman offered some instability to dollar bulls. Although confirming the notion that he would follow in the footsteps of the incumbent Greenspan, the public has not solidified Bernanke's stance on monetary tightening, as with any new position or individual. As a result, with anticipation high, some uncertainty may look to add incremental pressure to the greenback.
Technically Speaking: Breaking out of consolidation, the underlying major broke through the top side resistance at 1.7700 to hit the intrasession high of 1.7872. However, much like the euro major, the overextension in the spot price may lead to a slight retracement before any confirmed directional bias can be established. As a result, the 1.7800 figure looks to prove a mild floor with the former resistance at 1.7702 (38.2 percent fib level) considered a stronger support.
USD/CAD
Inflationary Concerns Lead To Speculation: Surprising the market today, consumer inflation in the Canadian economy vaulted higher than economists expected. Estimated to rise 3.3 percent on the annualized comparison, inflation in the world's eighth largest economy soared to 3.4 percent, exceeding the 2.6 percent rise last month. Now, considerably above the 2 percent central bank benchmark, Bank of Canada Governor David Dodge may be forced to continue raising interest rates as previously mentioned. Speculators took that notion to the bank along with further speculation that demand would be revived as we enter the fall season. Crude oil contracts for December delivery rose on the session, rallying above $62 a barrel to $62.25.
Technically Speaking: Previously finding the 38.2 percent fib level from the intersession move, the hovering price action surged down below all three support floors with conviction. Signaling the downturn looked to be the textbook head and shoulders formation after the underlying spot spiked through the 1.1900 figure. Resting above the 1.1750 support, a penetration below would lead to a test of support at the 1.1706 spike low from October 20th.
Richard Lee is a Currency Strategist at FXCM.
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