USD/CHF
Fueled By Wages: Dollar bulls held control of the pair today positioning themselves on income growth, as hourly earning numbers increased 0.5%. Coupled with Federal Reserve Chairman Alan Greenspan's expression of confidence in U.S. economic firmness, the positive data gave traders reason to believe that there remains room for interest rates to rise even further. The gain in wages bolsters the Chairman's concerns over increasing inflationary pressures.
Unfazed By Mixed Data: Exuberance over the wage data came in spite of mixed signals from other employment numbers. In October, U.S. employers added a mere 56,000 employees to non-farm payrolls, well below the expected 120,000. It seems that Dollar bulls chose to focus more on the 12,000 new jobs added in the manufacturing sector. Given the weak growth in overall employment, it is likely that the pair will be confined to trading within a tighter range moving forward.
Technically Speaking: Today's dollar rally brought the USDCHF pair back to the 1.3085 level which has acted as tough resistance for the past 16 months. Once again this level issued another round of swissie bids that kept huge rally from breaking this level. The next heavy level of resistance beyond the 1.3085 level comes into play at 1.3225. With the large traverse the pair made in such a short period of time, the nearest support comes in near the 38.6% fib area around 1.2935-2945.
EUR/USD
Unafraid Of Inflation: The EURUSD pair took a dramatic fall today following Euro-zone inflation data confirming the European Central Bank's sentiment that inflation in Europe is still at a tolerable level for the time being. Producer prices inflated in the Euro-zone by an expected 0.5%. This follows ECB President Jean-Claude Trichet's statement yesterday that inflation in the Euro region remains under control. Unconcerned that interest rates will rise any time soon to accommodate inflation, traders continued to push the pair downwards.
Not Optimistic Enough: Neither optimistic employment figures nor gains in PMI Services indices could combat the momentum. The pair fell in spite of a 0.2% decline in Euro-zone unemployment, which is not surprising considering unemployment numbers also took a moderate fall in the U.S. Service industry strength displayed in the French, Italian, and German PMI surveys was moderate and did not offer enough power to combat interest rate speculation.
Technically Speaking: A massive decline in the EURUSD was halted at the 1.1800 psychologically significant level, due to a number of protective stops and option barriers that are placed at that level. If the pair does indeed dramatically break this level, its next test of support will come at 1.775. More probable, however, will be a test of resistance from the former support level at 1.1875 as the pair is likely to rebound from today's spot close. The test at 1.1900 will be a stronger level for dollar bids given the level's historical significance as a strong support.
GBP/USD
Hikes On Hold: Fresh interest rate speculation hit the market once again in the currency and fixed income markets. The HBOS indicator of housing prices rose an annual 3.9 percent rise adding to Tuesday's Nationwide Building Socity's measure showing price growth of 3.3 percent on an annual pace. With the housing market picking back up, fears of a softening economy will take a back seat to more imparative inflation numbers. The Bank of England has scheduled its monetary policy meeting for November 9-10 and expectations of another dip are the farthest thing from market participants' minds. Yields on short-term bonds were at 4.42 percent, while a survey of 22 economists held a unanimous vote of no change.
Following The Trend: Beyond both rate speculation and employment data from the U.S., The USDGBP took its cue from the dollar blowing through significant levels in other major pairs. In the EURUSD, the greenback rally cleared the psychological 1.1900 level to draw the pair down to a 15 month low that brought 1.1800 into sight. Action for the dollar versus the yen was of the same cloth. Strength in the Japanese economy, which is picking up steam, has done little to take the wind out of the sails of the current rally as the pair countinues to move to new two year highs.
Technically Speaking: The spike low the GPBUSD made down to 1.7450 reflected the complete exhaustion the pair suffered at the end of the dollar rally. While the 1.7457 level where the rally finally hit the wall doesn't offer a strong technical level, the consolidation range from three weeks ago 1.7435/40 does. Further down, 1.7400 will be the strong level for pound bulls to rally the pair. Looking above, price action has already validated the 73.6% fib as a near level of resistance. Further north, the previous support around 1.7600 will effectively take of the momentum of a comeback from the pound.
Richard Lee is a Currency Strategist at FXCM.
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