NZD/USD
Kiwi Trades, Traders Listen: The Kiwi currency moved higher on the session, furthered by continuing momentum from Friday's carry trade speculation. Additionally bolstering the underlying was a relatively large euro kiwi issuance of $NZ200 million via TD Securities. These types of issuances can underpin strength as more of the currency is converted to meet purchase requirements. However, now rising to test the 0.7120 figure, plenty of downside remains for the single major as traders square positions ahead of tomorrow's Federal Reserve announcement. Expected to raise the short term rate once again by 25 basis points, market sentiment has shifted to consider the notion of a looser tightening policy as we head into 2006. As a result, individuals will be scrutinizing the subsequent rhetoric.
Technically Speaking: The New Zealand dollar has already broken its first level of resistance that stands in the NZDUSD's way to rallying to 0.7200. The 23.6 fib of the November, kiwi rally at 0.7094, which was also the former resistance level from October, has already been broken. Little stands in the way of a continued rally for the pair to the six month high 0.7200 touched on the fifth of this month. This level will be hard to surpass as its has been a strong support and resistance level through the year. If the 23.6 fib is taken out in another dollar rally, the rising trendline from the beginning of November would likely align with the 38.2 fib, of the same run, at 0.7028 will give another chance for kiwi bulls to gather strength.
USD/JPY
Positive Yen Data Bolsters Dip: A cornucopia of positive data for Yen bulls on the session as the majority shifted sentiment ahead of the Federal Reserve announcement tomorrow. First on the docket, the current account surplus grew to slightly above estimates. Although narrower than the previous month's figure, the figures continue to retain a positive bias as opposed to the growing U.S. deficit. In additon, consumer confidence rose on the month at a 48.2 reading versus the previous 47.9. Approaching ever closer to expansion suggestions, the turn in sentiment is reflective in the better than expected household spending figures seen previously. Finally, but most importantly, domestic wholesales prices rose on the annualized comparison. Although unchanged on the monthly figure, the annualized print remains suggestive that prices are rising on the wholesale level.
Subsequently, last month's figure was revised higher to 2 percent.
Technically Speaking: Yen command of the USDJPY pair is coming to another level of support, on which dollar bulls can once again jump in. After breaking the former short-term support level at 119.95, a run on the rising trendline established on November 1st, currently at 119.60.50 was rendered unsuccessful. If yen interest can take this level, there is a cluster of levels below it to be concerned about. A 38.2 fib of the month long dollar rally at 118.80/5 is a net just north of the strong, three-year 50.0 fib level at 118.45. Keeping a potential dollar rally contained will be loose yen bidding at 119.95, while the most pressure would be put on the pair when the newly formed two-and-a-half year high stands at 121.40.
USD/CHF
Dollar's Down Day: Expected to raise rates another 25 basis points to 4.25 percent, Federal Reserve policy officials continue their attempts in curbing inflationary pressures. However, in light of recent economic data, further rate hikes may not be as immediately needed as previously established. Mainly, increases in inflationary pressures have been minimal compared to gains in output and productivity. Manufacturing remains steadfast as does consumer demand and consumption. However, with core consumer prices remaining tepidly hovering 2 percent, albeit disregarding the temporal surge in September, inflation seems well contained. Sparking speculation of looser monetary policy going into the new year were statements following the last meeting by central bankers. Afterwards, policy officials emphasized concern over the rate at which the benchmark was rising and further stated a need for continued confirmation of higher rates through hard figures.
Technically Speaking: What started out as a slow turn in the Swiss Franc's favor has evolved into a strong rally. However, that rally is hitting a few significant levels. A confluence between a three month rising trendline and a 73.6 fib of the dollar rally from the beginning of November made 1.2850/5 the imbreachable level into day's price action. If the swissie stays in control through this level, a move to the 50.0 fib of the 3 month dollar rally from September at 1.2765 will be the next level for the bidding war. Resistance isn't in short supply either. Initially, the 61.8 fib will hold back a rally at 1.2921, but the nearest significant level is at 1.2991 - the 50.0 fib and former range low for most of the month of November.
Richard Lee is a Currency Strategist at FXCM.
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