USD/CHF
Dollar Strength Bolstered By Rates: Dollar strength was witnessed pretty much across the board today as a combination of profit taking on the USDJPY currency pair and economic fundamentals in the world's largest economy bolstered bullish moves. After the roughly 450 pip drop beginning last week, short yen traders continued to pare back winning positions ahead of the Christmas holiday. This boosted dollar bidding in addition to optimistic, depending on the perspective, inflationary data in the U.S. prompting further speculation of near term rate hikes by Federal Reserve officials. Rising 0.1 percent against a previous 0.3 percent decline, prices at the producer level rose on the monthly figure excluding volatile food and energy prices. Although the longer term annualized figure dipped to 4.4 percent from the 5.9 seen in the previous month, the short-term rise confirmed, for the most part, that at least one more rate hike would be forthcoming, as central bankers remain preventive. Compared to the Swiss franc counterpart, this still offers a great carry despite the SNB raising rates to 1 percent. Here, traders are still garnering 325 basis points on the long side.
Technically Speaking: Continuing off of the lower trend line, the USDCHF currency pair jumped off of consolidation at 1.2944 (the 50 percent fib from the weekly bear wave). Penetrating resistance at 1.2985 and 1.3035 the major has found a temporary top at 1.3115, the session high. As a result, the probable retracement has begun with a more than likely test at the 1.3035 floor (23.6 percent fib from the aforementioned wave). Should the barrier not hold, the price action would make a definitive onslaught on the 50 fib.
EUR/CAD
Canada - At Least One More Time: Today's Canadian data lent to some speculation that, like the U.S. interest rate, traders would see at least a 25 basis point rate hike when policy makers next convene. According to Statistics Canada, consumer prices dipped in line with previous estimates. Rising 2 percent, the November figure was lower than the previous October's 2.6 percent rise. Widely disappointing, the core figures were additionally in line, suggestive that inflationary pressures are not as serious as previously indicated by policy makers. However, market sentiment remains true to the notion that the Bank of Canada will raise rates at least once more before sitting on their hands as the world's eighth largest economy continues to churn away. Producing at full capacity, monetary heads remain preventive that the current level of activity could spur inflation leading to a longer series of hike scenarios. Additionally, with a political tiff in the Euro Zone, traders decided to continue the downward path in the currency cross to gain the 100 basis points of interest.
Technically Speaking: Bears pounded the synthetic cross for a good 100 pips before leaving the price action at a temporary floor. Hovering the confluence at 1.3891 (lower trendline and the 38.2 percent fib level from the weekly bull wave) the cross is experiencing some slight consolidation. A probable junction for a bounce, the price action would see a definitive test of the 1.3955 price figure (23.6 percent fib level). However, more potential lies with an onslaught of the 1.3840 figure (50 percent fib level) should the confluent barrier break. Capping would more than likely be considered at the 1.3789 or 61.8 percent fib.
EUR/USD
More Drama For The Single Currency: Just what the Euro Zone needs, more drama. Adding considerable downward pressure to the stability of the region and ultimately questioning euro recent strength, the resignation of Antonio Fazio sent shockwaves throughout the whole economic region. Quitting amid a scandal that involves insider trading and accepting gifts from the scandal riddled Banca Popolare Italiana, the former central bank Governor ended months of intense pressure from fellow politicians and business leaders asking for his voluntary resignation. Additionally contributing to the pressure were questions posed by the European Central Bank that alleged the acceptance of gifts from the former CEO of BPI, Gianpiero Fiorani. Fiorani was arrested last week on charges of embezzlement. The scandal grew to proportions that even involved the omnipresent Roman Catholic Church in persuading the governor's political enemy in forming an ouster bill. All in all, the situation presents the constituents of the region with yet another example of infrastructure instability. As with any situation in the past, this does not bode well for anyone except the all to powerful bears.
Technically Speaking: Crashing through significant floors, the price action has found stability at the low of the session, just above the 1.1850 figure. Consolidation looks probable as an imminent test of the 1.1890 figure looks to follow. Any momentum established to the upside may be considerably capped at the 1.1944 (50 percent fib level from the weekly bear wave). Comparatively, downside pressure would force a test of the 1.1830 support and 1.1800 psychological figures.
Richard Lee is a Currency Strategist at FXCM.
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