USD/CHF
The Hawks Watchers Get Excited: The premier dollar-based pair made its greenback based move today after positive U.S. indicators supported a 4.25% lending rate decision from the FOMC tomorrow. The first wave of speculation for an unencumbered rate hike found its way into the market when personal income and spending posted higher in September. These indicators backed the unexpectedly low dip in nonfarm payrolls and provided room for domestic consumption to keep GDP chugging along. Providing the second boost for dollar bids and blowing expectations out of the water was the Chicago purchasing management index which rose to 62.9 over the month. The strength in Midwestern U.S. business indicates that the effects of higher raw material prices are taking a back seat to consistent consumer demand.
Technically Speaking: The dollar rally today scaled a near vertical assent that was headed off with 1.2930 offers. Dollar strength was taken out at this level after hitting the 61.8% fib of the last longer-term franc rally, but the subsequent retracement was rather shallow. Looking higher, dollar bids will have to be strong going into the fib level. Strong resistance hovers at 1.3080 which is a multi-year high. A move to the downside would reencounter dollar bidding at 1.2830 which was strong resistance for last week.
USD/JPY
The Dawn Of Inflation: No surprises from the Bank of Japan today as they kept their ultra-loose monetary policy unchanged. What did catch traders attention however was the bank's indication that a rate change would be needed in the near future. Supporting this claim was an upgrade to the their outlook on price growth which suggests that inflation would return the world's second largest economy by the end of the fiscal year in March. Taking the wind out of this positive piece of news, were comments from BoJ governor Fukui in which he said even if even were the zero interest rate policy to come to an end, the pace of hikes would be slow with long periods of low lending rates in interim.
Rumorville: After the strongly held 116.25 option barriers were taken out during intraday trading, traders with stops and open options positions higher up looked to hold the market back. Yen bids have edged off the strength in the pair's rise with large offers hovering at 116.45/50. Word of mouth has it that these orders are guarding large option barriers at 116.50 that if breached could send the pair on another leg up.
Technically Speaking: After making quick work of both the significant 116.00 and 116.25 levels, price action has began to form an ascending triangle in the less volatile hours. Attempts at the psychologically significant 116.50 have been cut short multiple times, suggesting dollar bulls are adamant to get through this level. If a break occurs, large resistance doesn't come into the picture until 117.75. If yen bids can hold back the flood, a turn to 116.00 would be a first stop with strong yen bids sought at the bought trend channel at 115.30/50.
EUR/USD
Fundamental Factors: Going into month's end, the euro single currency was heavily suppressed during the session as HIA related repatriation, missing last week, returned this week. Additionally, with tomorrow's Federal Reserve policy meeting and the expected furthering of the current monetary tightening policy, traders pared back long euro positions but look to potentially return later in the week.
Potential Acquisition: Additionally affecting the market looked to be the announced bid by Spain's Telefonica for the U.K. based 02. The bid for the mobile operator totals $31.3 billion in cash and served as the final point in convincing the massive paring overnight. Coupled with lower dips in oil prices on the session below the $60 a barrel mark and a positive close for U.S. markets, traders saw no real reason to build euro coffers.
However, further selling may be capped at this moment as the price action hovers solid support of the recent range conditions in the market. Additionally, potential central bank buying interest has been hinted above the current level.
Technically Speaking: Consolidating at the moment, the price action looks to be resting after the considerable downturn in the pair. As mentioned above, with the currently longer term range trading conditions that we have been seeing as of late, short interest may have dissipated as traders consider flipping positions to the long side. Contributing to the notion has been whispers of central bank bids above. As a result, the first test to the upside looks to be the 23.6 percent fib level from the three day move. Any penetration would ultimately lead to a test of the 38.2 percent fib level at 1.2046. Additionally contributing to the upside is the golden cross in the Stochastic oscillator. However, at this point, a peek above the 20 reference would be required before the directional bias can be confirmed. As always, a break below current support would lead to a near term test of the intrasession spike low.
Richard Lee is a Currency Strategist at FXCM.
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