The rebound the EUR received late last week was short lived after Italian and Spanish bond yields moved higher. Today the economic calendar is filled with important economic data points from Europe, the UK, and the US, with the most important likely to be euro zone GDP and US retail sales.
Forex Market Trends
| EUR/USD | GBP/USD | USD/JPY | USD/CHF | AUD/USD | EUR/GBP | |
| Daily Trend |  |
|
 |
|
|
|
| Weekly Trend | |
|
|
 |
|
|
| Resistance | 1.4250 | 1.6620 | 79.30 | 0.9450 | 1.0750 | 0.8830 |
| 1.3860 | 1.6450 | 77.85 | 0.9310 | 1.0450 | 0.8655 | |
| 1.3650 | 1.6100 | 77.50 | 0.9150 | 1.0340 | 0.8600 | |
| Support | 1.3480 | 1.5850 | 76.95 | 0.9080 | 1.0050 | 0.8485 |
| 1.3145 | 1.5680 | 76.10 | 0.8760 | 0.9925 | 0.8360 | |
| 1.2870 | 1.5270 | 75.63 | 0.8570 | 0.9860 | 0.8285 |
Economic News
USD – Focusing on US economic Data
After two weeks of following the European political scene US economic data releases return to the spotlight. Today important data will be released beginning with retail sales, PPI, and the Empire State Manufacturing Index. Markets expect that the positive economic momentum that began in Q3 will likely carry over into Q4. An improvement in market sentiment is forecasted with a sharp pickup in the manufacturing sector. Retail sales numbers are expected to show continued growth in consumption though at a slower pace than in the month of September. Inflation pressures on the producer side (PPI) are forecasted to fall while the headline consumer inflation numbers (CPI) continue to rise to 3.9% y/y in September. CPI data for October will be released on Wednesday.
The Fed expects inflationary pressures to drop and in the worst case scenario a deflationary environment would take hold of the US economy. To avoid the threat of deflation the Fed would likely increase its balance sheet through additional bond purchases (QE3). This puts extra significance on Wednesday’s CPI figures as some economists expect the Fed could announce QE3 as early as its December 13th meeting.
EUR – Pressure Returns to Peripheral Europe
Yesterday the EUR came under pressure as peripheral bond yields began to climb once again. Italy had a successful debt auction of 5-year notes but the bonds were priced at their highest yield since Italy came into the EMU. Yields on the Spanish 10-year note climbed above 6% for the first time since the summer and the spread between the Spanish and German 10-year bond yields widened; an indicator of market stress. Spain is coming back into the picture as the Spaniards will go to the polls on Sunday in a general election.
Today brings euro zone flash GDP data. Consensus estimates are for growth of 0.2% and will likely highlight the struggling European economy. ECB President Mario Draghi said the euro zone economy will slip into a mild recession and previous PMI surveys suggest a slowdown in growth. The German ZEW Economic Sentiment survey should also show a more severe downturn in market sentiment, potentially weighing on the EUR.
With increased pressure on peripheral Europe the EUR has come off of its Friday highs versus both the USD and against the JPY. The EUR/JPY is approaching the key 104.70-105 level with the only support remaining on the charts coming in at at the September low of 100.75.
JPY – Japanese Growth Weakens but JPY Strengthens
Yesterday Japanese Q3 GDP was released in-line with consensus expectations as the Japanese economy grew by 1.5. However, the report had a negative tone as the revised Q2 data showed the economy contracted by -0.5%, more than the previous results showed which were at -0.3%.
The JPY continues to strengthen despite a Japanese economy that is stalling. Neither the traditional intervention nor the “covert intervention” as discussed in yesterday’s FOREXYARD Daily Analysis has been able to stop the JPY’s appreciation.
Wednesday will bring the BOJ meeting and no new policy measures are expected. This could continue the one way movement in the USD/JPY. Yesterday the pair dipped below its 55-day moving average. There is a lack of supports for the USD/JPY until the all-time low at 75.63. Resistance is back at the October 12th high of 77.50.
GBP – Rising UK Inflation Holding the BoE Back
Today will bring another letter from BOE Governor Mervyn King to the Chancellor of the Exchequer George Osborne, explaining why the rate of inflation is yet again above the central bank’s target of 3%. However, there are some economists who are of the opinion that UK inflation has peaked and will begin to decline. Certainly King and a majority of the Monetary Policy Committee believes this as the BOE suggested in their previous meeting minutes the BOE could start another round quantitative easing to stave off deflationary pressures. Today’s CPI is expected to come in at 5.1%, down from a peak 5.2% in September. A surprise to the upside will likely support sterling while a reading below market expectations and traders could sell sterling on expectations of additional easing by the BOE.
Technical News
EUR/USD
The resilience of the EUR has led many traders to adopt the strategy of selling the EUR/USD on rallies. The key resistance level is 1.3860 from the early November consolidation pattern. This is also the 50% retracement from the late October to early November downtrend (1.4246-1.3483). Approaches to this key level and the pair may run into selling pressure. Both monthly and weekly stochastics continue to move lower and initial support may be found at 1.3650, followed by last week’s low of 1.3480. A break here could open the door to 1.3145 from the October low. Additional resistance is located at the 200-day moving average at 1.4105.
GBP/USD
Sterling has been met with selling pressure on approaches to its 200-day moving average which comes in at 1.6140. This moving average comes in just above a bull flag pattern located on the daily chart. The support line of the chart pattern falls from the October 26th low and has a potential measured move of 480 pips which makes the August high at 1.6615 a convenient target. Should the pair fail to break out of the consolidation pattern, support may be located at 1.5850 as well as 1.5680.
USD/JPY
Yen strength has reemerged after a period of little movement. The USD/JPY may find support at its 55-day moving average at 76.95 though the one way movement in the price action hints at additional declines in the pair. Additional support may be located at 76.10 from the bottom of the September consolidation with a final destination at least the all-time low at 75.63. Resistance may be found off of the September high of 77.85 while the long term downtrend from the 2007 high is located at 79.30.
USD/CHF
The USD/CHF made a breach but failed to make a significant move above the 0.9080 resistance from the October 20th high. An additional push higher will likely target the October high of 0.9310. Traders should also have their eye on the 20-month moving average which comes in at 0.9450. Initial support is located near 0.8950 followed by the November low of 0.8760.
The Wild Card
EUR/JPY
The EUR/JPY is approaching the key 104.70-105 level. This price level has increased significance as it is the support from the October 26th low as well as the 61% Fibonacci retracement level from the October rally. A break of this support level and forex traders may look for the pair to fall to its last remaining support level at 100.75 from the October low.
Written by Forexyard.com