FOMC and Bernanke
- The big risk event today was the FOMC meeting.
- Rates held 0-0.25%. Can’t go any lower.
- Most important thing is that Operation Twist is extended to year-end, but no QE
- But as usual QE is still on the table.
NZ GDP for Q1: 1.1% forecast 0.5%, Q42011: 0.4% (revised from 0.3%)
- This gave the NZD/USD a boost, while all other majors stay put against the USD and is actually sliding during the start of the Asian session.
- We have a slew of manufacturing and services data fro Europe. Bad data expected, and expected to continue pushing ECB for rate cut. This bad data will be euro-negative, but it is second tier compared to its existential concerns.
- The market is pricing in a move toward fiscal union instead of breakout. IF the poor data knocks the EURO down below some key levels against the USD and JPY, then we are likely topping off in a period of sideways market.
- We also have retail sales data for the UK. Today, we saw the that 4 out of 9 members voted for QE, so the likelihood is higher. Still GBP rallied on the back of general risk-on.
- Worse than expected retail sales data ie. negative reading can give GBP short-term pressure, but against the USD and JPY, general risk sentiment is still tier one. – Against EUR, the EUR/GBP might hold its low above 0.80 for example, if UK data if poor, and push toward the 0.8150 resistance pivot (within consolidation).
- Canadian retail sales data is also second tier. As a commodity currency CAD has been gaining against the USD and JPY as WTI crude oil stalls its decline.
- US Jobless claims, Philly Fed are important. Home sales is key as well, but only as part of a long, long drawn out recovery, so it should not shake things up.
- Jobless claims may cause risk aversion, but at the same time help market price in QE, which are countering effects.
We will follow up and cover these and upcoming risk events in the MIB.
Technical Strategy Update
- Doing the shake out dance and the dust has not settled.
- It put a range between 1.2740 (near the 1.2744 week-high), and 1.2635.
- The break to the upside is a significant breakout that suggests further recovery toward 1.2820, with 1.30 as the maximum bullish outlook for now.
- To the downside, there is still room toward 1.2580 area and still be within the recovery channel that’s been developing in June.
- The 1H RSI needs to break below 40 and preferably 30 before we shelve the bullish outlook.
- A break below 1.2530 makes the bearish outlook more clear, but the outlook is limited to the June low of 1.2285-1.23 for now.
- Similar to EUR/USD, GBP/USD set up a post-FOMC-reaction range
- Between 1.5655 and 1.5775.
- A break above 1.5775, followed by a break above 1.58 clears an area of resistance factors, opening 1.59, 1.60 at max for now.
- Below 1.5655, look for support near 1.56.
- Below 1.56, we can start considering the bearish continuation, or at least a limited bearish outlook to June’s low of 1.5280-1.53.
- The reaction range is between 1.0225 and 1.0144.
- A break to the upside confirms a recent break above a declining trendline that has held the 2012 decline.
- A break below 1.0140 would suggest a false breakout, which can be an early sign of a reversal, but a premature sign as long as the market remains above a rising trendline in June.
- A break below 1.01 may suggest this reversal back to the downside, with parity (1.0) as a key level to monitor. Below that we can target 0.98 and then the 0.96 June-low.
NZD/USD at 0.80 and actually cracked it after the GDP data
- If it is to maintain the bullish intent following the GDP data, it should not retrace back below the 0.7940 pivot or we don’t have a true breakout.
- In that scenario, there is downside risk to test the rising trendline from June, but only a break below 0.7880 should cause us to shelve the bullish outlook.
- The bearish continuation scenario has a maximum outlook for now toward June’s low near 0.7450.
- To the upside, there is still room toward 2012 declining trendline, which should be near 0.81.
As we have been noting all week now commodity currencies seem to be leading the way during risk-on, while EUR is likely the lead in risk-off. This might not be true if China’s growth slowdown story takes center-stage, but that is not the case right now.