GBP/CHF
Rate Stay Expectations: Traders mounted on further momentum from earlier carry trade bias as the GBPCHF currency pair currently offers a 375 basis point spread. Although sentiment remains high that an interest rate cut is needed to cure the current consumer demand ailment, traders are steadfast in the belief that Governor Mervyn King will not move to solve a short term problem. Housing prices have reversed, if only slightly, and inflation is expected to decline well into 2006. With prices lower, consumers may very well return to the stores, ultimately leading to higher manufacturing and industrial production figures. In economic data, bolstering the move only slightly, was a narrower trade deficit. Expected to tick slightly lower to 5.2 billion, for the month of October, the deficit shrank to 4.6 billion. Attributed to the better than expected figure was the nation oil trade, rising to a surplus of 64 million pounds, and growing orders for aircraft and chemicals.
Technically Speaking: As volatile as ever, the GBPCHF pair has once again bumped its head against the five-month long falling trendline. The more probable move for the pair is for another trend in the Franc's favor, but continued pound strength is not out of the question. If this long trendline fails to contain the fluctuating pair, the former resistance level at 2.2935/50 would be the next area for swiss bulls to cut the rally short. The more likely move south is facing fibs and blurry support lines all the way down to an opposing rising trendline that is at 2.2870. Expect the 50.0 fib at 2.2734 to offer the first clear level of support.
GBP/JPY
Dour Data In Japan: Similar to the GBPCHF carry, traders reinitiated long positions in the GBPJPY currency pair as the interest rate spread continues to offer 450 basis points on a zero interest rate policy provided by the underlying Japanese yen. Furthering the zero interest rate policy notion was a disappointing day of data for the world's second largest economy. According to the most recent reports, growth in the Japanese economy eased for the final showing of third quarter activity. Previously expanding at a 2.3 percent annualized pace, the economy has slowed to a 1 percent pace. On the monthly comparison, the figure widely missed expectations of a 0.6 percent rise by jumping only slightly by 0.2 percent. As a result, with further notions that loose monetary policy will be maintained, traders took the opportunity to heart.
Technically Speaking: The British Pound has finished out the week with another push into levels against the yen in over seven years. A strong run that was cut short largely due to liquidity, the pair should not have trouble springing back to life on the open Monday. A move higher would first have to take out the psychological, even 212.00 level. Beyond this a move to the major support level from June 1989 at 212.85 should not be out of the pair's reach. If the Yen tries once again to take control like it did earlier in the week, it will have to take out the rising trend channel. The channel bottom currently resides around 211.75/80. Major support comes in with the former double-touch resistance at 208.15/20 on March 9th and November 4th.
AUD/JPY
We Have Something You Need: It is a battle between one of the world's largest commodities producer and one of its largest consumers. Certain non-perishable commodities, specifically metals like copper and gold, have been on the rise while breaking through highs that were nearly a quarter of a decade strong. Gold prices rose beyond $530 per troy ounce in intra-day trading while copper prices stuttered at $220. While these increases in prices have benifit large exporters like Canada and Australia, Japan is left picking up the tab - unable to produce any of its own stock to offset the painful draw on Japanese companies' revenues. As long as prices for these necessary resources are on the rise, with little end in sight, this pair will continue to reap the rewards.
Technically Speaking: A Yen correction in the AUDJPY pair could not hold up to the former resistance range level at 89.80/85, that took much steam to break in the first place. Support at this level is very strong for the pair and a break would spur a large round of momentum for Yen bulls that would likely not stop until the 50 fib of the current swing at 88.60. Further more this is also the level the pair really switched gears and accelerated its appreciating pace. A lack of near support leaves the upside the more likely prospect for price action. However, the former support level from February 1997 at 91.75 will be difficult to breach.
Richard Lee is a Currency Strategist at FXCM.
Free Festival of Traders Videos
