Since last week’s bout of USD strength the major currencies continue to trade in defined ranges as market players look for the next big event which could come from Europe.
Forex Market Trends
| EUR/USD | GBP/USD | USD/JPY | USD/CHF | AUD/USD | EUR/GBP | |
| Daily Trend |  |
|
 |
|
|
|
| Weekly Trend | |
|
|
 |
|
|
| 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 | 78.25 | 0.9080 | 1.0450 | 0.8670 | |
| Support | 1.3715 | 1.6070 | 77.50 | 0.8840 | 1.0200 | 0.8550 |
| 1.3600 | 1.5850 | 75.56 | 0.8760 | 1.0115 | 0.8350 | |
| 1.3145 | 1.5630 | 0.8565 | 0.9925 | 0.8285 |
Economic News
EUR – Berlusconi to Step Down
Italy has become the latest EU nation to have changed leaders following Greece, Portugal, Ireland, and Spain. Could Italy also be the next EU member to receive a financial bailout?
Italian Prime Minister Silvio Berlusconi succeeded in passing a budget proposal but failed to win an absolute majority in the Italian parliament. Following this defeat in parliament Berlusconi promised he would resign from office after the 2012 budget is approved.
The announcement by Berlusconi helped to support the EUR and the EUR/USD bounced above the 1.3800 level though the pair remains confined to a roughly 160 pip range. Resistance is found at last week’s high of 1.3860 with support at the rising trend line on the hourly chart which comes in at 1.3705. A breakout below this support may see a retest of the October low at 1.3160.
Consolidation remains the tone for the forex markets as traders look for the next major market moving event. Perhaps this will come in the form of Italy accepting some sort of EU support? For the second day in a row Italian bond yields reached a new EMU high with the 10-year bond yield climbing to a record 6.77%.
GBP – UK Economic Data Drags
Yesterday’s manufacturing production numbers from September were the first increase in the report over the past four months though the data is nothing to brag home about. Retail sales numbers for October dropped a sharp -0.6% on a year-over year basis. The weak data combined with inflation that has risen as high as 5.2% is a sign of an economy that is suffering from stagflation, a combination of weak growth and rising inflation.
Despite the poor performance of the UK economy sterling continues to move higher versus both the EUR and USD. The GBP/USD is approaching its 200-day moving average at 1.6150 and the October high of 1.6165. Support is back at 1.6060 from the rising support line on the hourly chart since the start of the month.
JPY – First Sign of Life in USD/JPY after Intervention
Yesterday during the New York trading session we had the first movement in USD/JPY following Monday’s intervention. The USD/JPY fell to a low of 77.60. This level also happens to be the post intervention low. Up until this afternoon the USD/JPY was trading in a tight 20 pip range.
The drop in the pair is one sign the most recent attempt by the Ministry of Finance (MOF) to weaken the JPY has failed. The slow grind lower in the pair may continue until the next quarter when Japanese exporters and corporations need to change their dollars for earning season and the Japanese will intervene once again. Perhaps the MOF should take a page from the playbook of the SNB who chose to weaken the CHF in the FX swaps and forward markets rather than the spot market.
Gold – Gold Prices Continue their Recovery
Spot gold prices continue to recover from their September lows as events in Europe have boosted demand for the commodity. The safe haven asset continues to gain in the cloudy macroeconomic environment, rising above $1,800 yesterday.
Growth is beginning to slow in the euro zone and European PMI surveys hint at below average Q4 GDP. ECB President Mario Draghi told reporters that the euro zone economy may slip to a mild recession. Events in Greece and Italy have also kept financial markets uneasy, possibility increasing demand as a safe haven asset. As events in Europe continue to weigh on market sentiment, spot gold prices may continue to receive a bid.
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 stochastiscs 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
NZD/USD
The kiwi is currently consolidating but daily stochastics for the NZD/USD are moving higher. The pair is finding resistance at 0.8000, an important technical level. Not only is this a big round number which many traders use to place stops and limit orders, but it is also where the 20-day and 200-day moving averages are found. Forex traders should note that a break above this level could see the pair rise to 0.8170 where the trend line off of the August and October high. Support is back at the November low of 0.7800.
Written by Forexyard.com