USD/CHF
Rising Foreign Interest: Today's U.S. net foreign investment data surprised to the upside considerably today crushing earlier estimates of an expected rise of $75 billion. Foreign investors picked up net investments to the tune of $101.9 billion in the month of September as higher interest rates and interest rate prospects by the Federal Reserve fueled the overseas interest. As a result, market participants picked up further dollar initiatives as the better than expected figure looked overshadow the wider trade deficit seen earlier in the week. Slightly higher consumer prices added to the momentum as prices rose 4.3 percent on the year according to the U.S. Labor Department. Excluding the volatile food and energy components, the core figure rose 2.1 percent.
Further Rate Hikes: Even with the SNB considering raising the interest rate above the current 0.75 percent, traders look to still side with the greenback as further suggestions were made for continued hikes in the near term.
According to Bernanke, as he was confirmed by the Senate Banking Committee, the current policy started by incumbent Chairman Greenspan will remain intact and a priority.
Technically Speaking: The USDCHF pair made a test of a three-year long, significant 50 fib level at 1.3295; but the level seems to have brought franc orders back to the pair. After breaking a former high to post a new two year high, it seems dollar bulls have musted all the momentum they could for the time being in forming the 130-pip range bar. If dollar bids can move price through this level, stops at this level could supply enough of a boast to make it to the 1.3400 level which has been technically important back in the last half of 2003. If the pair can move through the rising channel bottom currently around 1.3180/3200 the 38.2 fib of the two-week dollar rally at around 1.3060 will be major support with further technical confluence at 1.3050 backing the level.
GBP/JPY
Dour Data For Pound Bulls: Economic data was relatively poor for the pound enthusiast in light of the month's claimant count remaining unchanged at 2.8 percent. According to the Office of National Statistics, jobless claims rose for the ninth month in October as companies attempt to cut costs through labor force reductions. A string of claimants this long hasn't occurred since 1992 when the economy had its last recession under the watchful eye of Conservative Party Prime Minister John Major. As a result, with the number of individuals claiming unemployment rising above expectations of 12,100, sentiment is leaning towards a more than probable rate cut as policy leaders attempt to spark consumer demand.
Further Public Spats: Bank of Japan policy makers entered their two day meeting earlier this morning with most expecting hell to freeze over before any rate hikes to occur in the world's second largest economy. Adding some pressure on the underlying looks to be the recent discrepancy between the central bank's independence as government leaders have stated their favoring of the current loose monetary policy. This may turn the focus on any released statements following the ultimate decision tomorrow before any direction can be established in the overextended spot price.
Technically Speaking: After five days of trending higher for the GBPJPY, the pair finally peaked out Monday at the 76.3 fib of the early November Yen run at 207.16. A few days of consolidation that has held tight resistance just below 207. The break that finally insued to the downside petered out just short of the strong 203.75 level which is both support from a double touch low on the 24th of October and 9th of November, while also the 23.6 fib of the low and high of the year. The pair very well could continue to this level of support, while a move higher will likely eventually find its way back to 207 before meeting a real round of Yen bids.
GBP/USD
Woeful Pound: The pound sterling was hit by a bout of considerable selling as bears took advantage of a pessimistic report by Bank of England central bankers. According to the Quarterly Inflation Report released this morning, policy makers stated that inflation looks to dip below the benchmark 2 percent target set by the central bank in early 2006. In line with previous statements by Governor Mervyn King, current inflationary pressures are being seen as a temporary shock to the economy caused by inflated energy prices. Additionally, the report indicated a lowering of earlier growth forecasts as consumer spending looks to remain thin. Taking the two components of the report into consideration, traders are now seeing a more than likely rate cut scenario as leaders attempt to boost demand without the threat of bolstering inflation in the economy. Lending to the notion, futures traders look to already be pricing in a 25 basis point cut as early as December.
Technically Speaking: A bottom for this three week drop in the GBPUSD pair seems in sight.
The waterfall in prices lost all steam at 1.7137 just short of the 1.7120/30 level that was major resistance from late 1996 until late 2003. Multiple tests of this level in '97, '98, and '99 make this level one to eye for aggressive dollar bulls. A pound rally would likely be cut short when the former 23-month low was set with July 20's spike low to 1.7272. Further north, the range low for the past four months at 1.7325 will be a more solid level for dollar bulls to protect.
Richard Lee is a Currency Strategist at FXCM.
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