USD/CHF
Fed Fuels Gains: Anticipating the Federal Reserve's announcement, traders bid the currency higher ahead of the slated release. Already expecting the 25 basis point rate hike, the overall market sentiment focused on the subsequent rhetoric as traders questioned the future rate at which the benchmark would rise. The Fed did not disappoint. After raising the benchmark rate the expected measure, policy makers overlaid new statements, effectively removing the “measured pace” and “accommodative” clauses. Suggestive of an end to currently tight monetary policy, carry traders continued their interest in the widening interest rate differential between the world's largest economy and the Swiss economy. This interest has bolstered the dollar for most of the session, but has recently taken a back seat as we approach the cutoff.
Technically Speaking: Intraday action was rocky as bulls pushed greenback interest higher at the onset of the session, but pulled back towards the end. The overnight saw price action that bounced off of the longer term bottom trend line, fueling further bidding on the way up to the 23.6 percent fib level of the two week bear wave. Providing resistance currently, the underlying is consolidating before further directional bias returns. Subsequently, given the length of consolidation, further downside is in store for the short term with an imminent test of the 1.2929 floor. Upside tests come in the form of the previous consolidation at 1.2964 and 1.3001 (the 38.2 percent fib level).
GBP/USD
Policy Makers Overstate: Lending to the downside we saw in the overnight, traders pared back long pound positioning, as inflationary suggestions remain tepid in the British economy. A negative compared with earlier hawkish bias projected by the Bank of England, consumer prices rose less than expected. The consumer price index in the United Kingdom rose 2.1 percent, down from 2.3 percent in the month of October. Leading the declines were crude oil prices. Energy prices have overall declined since August with crude oil contracts now just mildly higher by 30 percent on an annualized comparison. The lower figure is somewhat of a blow to pound bulls as earlier speculation was for higher rates of inflation leading policy makers to retain the 4.5 percent repurchase rate. However, now that inflationary pressures seem thin, central bankers may turn their focus to the recently sluggish consumer demand in the region. Ultimately, this would mean a heavy consideration of lower rates to spur consumption and interest and a negative bias on the sterling carry as spreads would inevitably narrow.
Technically Speaking: Rising to a ceiling of 1.7781, the underlying currency has retraced back with further room to drop as it approaches the 23.6 percent fib level at 1.7610 on the longer term. A retest of the 1.7761 resistance level is not a foregone conclusion as positively biased consolidation is lending some upside in the short term. Additionally contributing is the bottom side trendline formed by the past three troughs.
NZD/USD
Dour Data: The Kiwi dollar took a slight hit on the chin today as an increasing U.S. interest rate narrowed the differential spread between the two economies. Although the New Zealand economy has no immediate danger, as it offers the highest rate of all the industrialized nations, retail sales data on the session was to the down side. Lower retail sales may be suggestive that the overnight cash rate hike has gone too far too fast. Retail sales dipped 0.2 percent against expectations for a rise by 0.3 percent. The dip is now the second consecutive month where sales were on the downside in light of lower fuel and energy costs. As a result, speculation is now mounting on the economy plateauing or even slipping slightly at the brink of the new year. Pessimists now may reign over the pair until either further carry interest is bolstered or underpinned figures surface.
Technically Speaking: Hitting a clear ceiling at 0.7110, the price action has retraced to 0.7055 (38.2 percent fib level from the recent bull wave). Now finding a premature bottom, the currency looks headed for further downside. Immediate exposure to the 0.7010 (50 percent fib level) is the more than likely scenario. Upside potential in the near term reside solely on the previous ceiling at the 23.6 percent fib level.
Richard Lee is a Currency Strategist at FXCM.
Free Festival of Traders Videos
