Swiss CPI data from October showed a larger than expected decline in prices. As such, traders have tried to get out ahead of the next possible move by the SNB to weaken the CHF.
Forex Market Trends
| EUR/USD | GBP/USD | USD/JPY | USD/CHF | AUD/USD | EUR/GBP | |
| Daily Trend |  |
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| Weekly Trend | |
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| Resistance | 1.4550 | 1.6615 | 80.20 | 0.9775 | 1.1010 | 0.8880 |
| 1.4250 | 1.6535 | 79.50 | 0.9160 | 1.0760 | 0.8830 | |
| 1.3870 | 1.6165 | 79.70 | 0.9080 | 1.0450 | 0.8670 | |
| Support | 1.3700 | 1.5850 | 77.80 | 0.8760 | 1.0200 | 0.8550 |
| 1.3600 | 1.5630 | 77.50 | 0.8565 | 1.0115 | 0.8350 | |
| 1.3145 | 1.5270 | 75.56 | 0.8450 | 0.9925 | 0.8285 |
Economic News
USD – US Data Decoupling from Euro Zone
US economic data is seen as improving while recent data in Europe presents a bleak picture of an economy that is heading for a recession. Beginning with a respectable Q3 GDP result of 2.5% growth and a respectable NFP report showing an additional 80K jobs were added. Europe on the other hand reported weak PMIs last week while yesterday’s release of German industrial production contracted -2.7% on consensus forecasts of -0.7%. Last week the ECB cut rates by 25 bp as Draghi foresees the euro zone entering a “mild recession”.
One factor weighing over the head of the FX markets is the potential for another round of quantitative easing from the Fed. Today two Fed speakers will likely present an argument against QE3. Both FOMC members Charles Plosser and Narayana Kocherlakota are known hawks who do not share the ultra-loose monetary policy of Fed Chairman Bernanke. The risk is for USD weakness following their speeches today, though movements in the major FX pairs will likely be driven by events in Europe.
EUR – EUR Faces Headline Risk
The rumor mill continues and this makes the EUR vulnerable to headline risk. Such was the case with Italy’s Prime Minister Berlusconi pending resignation and then denial via Facebook. The Italian 10-year BTP yield moved to an EMU high of 6.67%, a level that signals continued pressure in the Italian debt markets.
The ECB was busy buying bonds last week to contain the fallout from Italy. The SMP purchased EUR 9.52 bn worth of European bonds compared to the previous week’s EUR 4 bn. This is a troubling sign given the continued pressure on Italian debt yields.
A short term bearish technical indicator appeared on Friday with the crossing of the 5-day moving average below the 20-day moving average. Many times this indicator shows the direction of the short term trend. Support is located at the November 1st low of 1.3600 with resistance at last week’s high of 1.3870.
CAD – Canadian Economic Data Begins to Sag
The economic data from Canada is beginning to show weakness in the Canadian economy. Last Friday unemployment numbers showed the Canadian economy shed 54K jobs in October while the unemployment rate jumped to 7.3% from 7.1%. Friday’s Canadian jobs report showed that a majority of the job losses were in the manufacturing sector. Market sentiment is also beginning to affect the CAD and events in Europe are helping to support the USD/CAD.
Today Canadian housing numbers will be released along with a speech by BoC Governor Mark Carney. The Risk is for his speech to sound more bearish on the outlook for the Canadian economy given the downbeat Market Policy Report from October.
Technicals for the USD/CAD are turning bullish. After the pair broke its long tern downtrend from the May and August 2010 highs the pair fell back to the trend line and bounced higher in textbook fashion. Resistance for the pair is found at the October 18th high of 1.0260 and a break here could have scope back to the October high of 1.0650. Support is located at the previously broken trend line at 0.9850.
CHF – Deflation Returns to Switzerland
SNB officials may begin to worry over October’s CPI data which showed consumer prices contracted by -0.1% m/m. Consensus estimates were for an increase of 0.2% m/m. The y/y rate is down to -0.1% from +0.5% as last reported in September. The CHF was sold across the board following the data release as market players expect the SNB to take additional action to weaken the Swiss franc in light of the deflation threat. One possible step the SNB could take would be to raise the floor of the EUR/CHF to 1.25 from the initial 1.20 level. Today SNB Governing Board Chairman Philipp Hildebrand will be speaking in Berlin and may shed more light on the strategy behind the SNB’s battle with deflationary forces and an overvalued Swiss franc.
The EUR/CHF reached as high as 1.2390, a level that coincides with its long term downtrend off of the May 2010 high. A decisive break here might find resistance at the October high of 1.2470, followed by the late April highs of 1.2960. Likewise the USD/CHF is moving higher and a crossing of the 50-day and 200-day moving average is a bullish technical indicator. Resistance is found at the October 20th high of 0.9080 and the October high of 0.9310.
Technical News
EUR/USD
After the pair recovered to its long term trend line from the June low the EUR/USD failed to move above the previously broken trend line which turned into a resistance level. Weekly stochastisc have rolled lower and point to additional declines in the pair. Initial Support is found at last week’s low of 1.3600 and a break here could have the pair testing the October low of 1.3145. Resistance is located at the 200-week moving average at 1.3980 followed by the October high of 1.4250.
GBP/USD
The GBP/USD continues to be buoyant with the pair forming a base at its 55-day moving average at 1.5860 though weekly stochastics are beginning to cross which hints at a decline in the price. A break below last week’s low of 1.5875 could have scope to 1.5630 from the October 18th low, a level that is close to the 61% Fibonacci retracement from the October bullish move. Resistance is capped at the pair’s 200-day moving average near 1.6140, followed by 1.6530 off of the trend line from the April and the August highs.
USD/JPY
The MOF intervened in the market when the USD/JPY was at a new all-time low and ensured that both the weekly and monthly candlesticks would make an outside day up, a bullish candlestick. However, the failure of the pair to break above the falling trend line off of the 2007 and 2010 highs show the long term downtrend remains intact. Initial support is found at 77.80 from the September high followed by 77.50. The resistive trend line comes in at 79.50.
USD/CHF
A cross of the 50-day moving average above the 200-day moving average will likely take place within the next few days and is a bullish technical move. Initial resistance is found from the October 20th high of 0.9080 followed by the October high of 0.9310. Support is back at Thursday/Friday’s low of 0.8760 followed by the October low of 0.8565.
The Wild Card
Gold
Spot gold prices have moved above their 61% retracement from the $400 decline seen during the month of September. This puts into play the resistance level of $1,816.50 and forex traders are eyeing the $1,921 high. Support is found at the 55-day moving average at $1,719 and the November 1st low of $1,681.
Written by Forexyard.com