Forex News and Events:
The sterling has sold-off aggressively below 1.6600 this morning, alongside the majority of G10 currencies (except Yen). The main reason is likely to be Putin’s support of Crimea accession. We also hear rumors that the major seller has been a custody bank, perhaps based on strategic action. GBP-complex is subject to important macro event/data this week. The release of jobless data and the BoE minutes will be followed by Osborne’s budget announcement to the Parliament tomorrow. The growth forecasts are expected to be revised higher. The BoE Governor Mark Carney speaks today.BoE minutes and budget and unemployment to define GBP course this week
GBP-complex made a flat start to the week with negative bias as Rightmove published slight slowdown in house prices in March. The inflation in house prices remains an important issue in UK with 6.8% increase on yearly basis in March (vs. 6.9% in Feb) and a slight slowdown from 3.3% to 1.6% on monthly basis. Even though the Governor Carney believes this is not under BoE’s responsibility, the FX prices are generally impacted by dynamics in house price inflation. Higher the prices, higher the upside pressures on BoE to hike rate.
The Bank of England will release March 6th meeting minutes on Wednesday, alongside ILO jobs data. To recap, the BoE has kept the bank rate unchanged at the historical low of 0.50% and the asset purchases target stable at GBP 375bn. Although we know that the Governor Carney remains resolutely dovish, we will be looking for signs of dispersion in votes through the BoE minutes regarding UK’s economy and the appropriate time to start tightening the rates. In addition, the UK Chancellor Osborne will publish budget to the Parliament tomorrow; OBR is expected to raise UK’s growth forecasts higher.
Fortunately for Carney’s forward guidance framework, the ILO unemployment rate (3 months average) had slightly deteriorated from 7.1% to 7.2% in December release. We are still very much close to BoE’s 7.0% target. Although the 7.0% is not a trigger for higher rates as clearly mentioned by Carney a month ago, a further improvement in jobs market should increase pressures on higher rates from the market side. On Wednesday, the expectations are flat at 7.2% unemployment; however the risk is rather on the downside given the momentum in unemployment dynamics. We remind that the unemployment in UK eased from 7.8% to 7.1% (in Nov) since the beginning of Carney’s mandate. Any positive surprise (lower unemployment) should revive the fading appetite in sterling.
Technically, the Cable remains ranged with bearish technicals limiting the upside attempts in the short-run. We see option bids with today expiration trailing above 1.6630. From Wednesday, option bids move to 1.6685/1.6700. On the downside, a failure to hold ground above 1.6650 will activate the option offers at this level and will reinforce the downside bias for the week. All in all, Wednesday data/events are key for GBP-traders this week. We see support formation above 100-dma (currently at 0.83215) in EUR/GBP. Trend and momentum indicators are solidly positive, the next target stands at 0.83915 (Fibonacci 61.8% on Aug’13 – Feb’14 decline). Decent option bids are seen at 0.83800 for today’s expiry. Walking into tomorrow, the almost-overbought conditions in EUR/GBP (RSI at 64%) suggest correction on the downside. Some traders see interesting selling opportunities pre-0.84000.
Versus the yen, GBP holds support above the 100-dma (currently at 168.012), yet the technicals are solidly bearish mostly due to decent safe-haven inflows in JPY since last week. The key support stands at 168.000 (~100-dma which actually coincides with the broad uptrend channel base), if broken will clear the way for 165.780 (Dec support) & 163.900 (Feb dip).
GBP/USD" title="GBP/USD" height="242" width="500">Today's Key Issues (time in GMT):
2014-03-18T12:30:00 CAD Jan Manufacturing Sales, exp. 0.6%, last -0.9%2014-03-18T12:30:00 USD Feb CPI m/m, exp. 0.1%, last 0.1%
2014-03-18T12:30:00 USD Feb CPI y/y, exp. 1.2%, last 1.6%
2014-03-18T12:30:00 USD Feb CPI Ex Food & Energy m/m, exp. 0.1%, last 0.1%
2014-03-18T12:30:00 USD Feb CPI Ex Food & Energy y/y, exp. 1.6%, last 1.6%
2014-03-18T12:30:00 USD Feb Housing Starts, exp. 910K, last 880K
2014-03-18T12:30:00 USD Feb Housing Starts m/m, exp. 3.4%, last -16.0%
2014-03-18T12:30:00 USD Feb Building Permits, exp. 940K, last 937K
2014-03-18T12:30:00 USD Feb Building Permits m/m, exp. 1.6%, last -5.4%
2014-03-18T12:30:00 USD Jan Net Long-Term TIC Flows, exp. USD 40.0B, last USD -45.9N
2014-03-18T12:30:00 USD Jan Total Net TIC Flows, last USD -119.6B
The Risk Today:
EUR/USD EUR/USD has thus far failed to make any follow-through after the move above the strong resistance at 1.3893 (27/12/2013 high), and has shifted into a consolidation pattern. The short-term technical configuration remains positive as long as the support at 1.3834 (11/03/2014 low) holds. Another support is given by the rising channel (around 1.3772, see also 50% retracement). In the medium-term, the ascending triangle formation favours a further upside potential towards 1.4368. A key resistance lies at 1.4247 (27/10/2011 high), whereas a key support is at 1.3643 (27/02/2014 low).
GBP/USD GBP/USD is moving sideways with little directional conviction. Monitor the hourly horizontal range between 1.6569 and 1.6718. Another support is given by the underlying rising trendline (around 1.6434), whereas another resistance stands at 1.6786 (07/03/2014 high). In the longer term, the technical structure favours a bullish bias as long as the support at 1.6220 (17/12/2013 low) holds. The decisive break of the resistance at 1.6668 opens the way for a move towards the major resistance at 1.7043 (05/08/2009 high). The recent weakness still looks like a correction within an underlying uptrend as long as the support at 1.6569 holds.
USD/JPY USD/JPY is trying to bounce near the support at 101.20 (03/03/2014 low) after its recent sharp decline. The initial resistance at 101.88 has held thus far. An hourly resistance stands at 102.87. Another support can be found at 100.76. A long-term bullish bias is favoured as long as the key support area given by the 200 day moving average (around 100.26) and 99.57 (see also the rising trendline from the 93.79 low (13/06/2013)) holds. A major resistance stands at 110.66 (15/08/2008 high).
USD/CHF USD/CHF is moving in a symmetrical triangle, usually seen as a continuation pattern. Furthermore, the technical structure is negative as long as prices remain below the resistance at 0.8816 (07/03/2014 high). An hourly resistance stands at 0.8765. From a longer term perspective, the structure present since 0.9972 (24/07/2012) is seen as a large corrective phase. However, the break of the key support at 0.8800 (27/12/2013 low) opens the way for a further decline towards the next key support at 0.8568 (27/10/2011 low).
