Forex News and Events
It has been a highly volatile week for the EUR-complex. EUR/USD dropped more than seven figures (week high 1.1241, week low 1.0495) starting from Monday as the ECB officially started buying sovereign bonds. The ECB has bought 9.8 billion euro debt, from triple A-rated German bonds to more risky peripheral bonds, with an average of nine year maturity through the first three days of the program. The QE program aims to expand the ECB balance sheet by 60 billion worth sovereign debt on monthly basis until September 2016 (and beyond if needed). We hear talks that the ECB may further cut its deposit rate to widen sovereign bond pallet eligible for ECB purchases, as the QE does not allow the purchases of bonds yielding more negative than the deposit rate (-0.20%).
That said, the heavy drop in EUR/USD has certainly more to do with the self-fulfilling prophecy of traders explicitly targeting 1.05, then the parity. The first target has been achieved, followed by a bounce back as the deeply oversold conditions triggered some short covering. Correction is healthy and needed as the RSI recovers from 15%. And next week will perhaps be another challenge for the single currency; EUR will step into the FOMC decision week without having reached any agreement with Greece.
Tensions between Greece and Germany mounts. Greece asks to be paid more for WWII reparations and complains officially about German FinMin Schaeuble, while Germany asks for fiscal discipline and reforms after having lent 240 billion euros for Greek recovery via bailout funds.
We see two-sided volatilities walking into March 17/18th FOMC meeting. Following the strong NFP read in February, the Fed-hawks pushed the US yields above 2% and the US Dollar Index index to 100 for the first time since March 2013. US sovereign yields and FX markets price in the potential drop of “patient” wording from FOMC’s rhetoric next week, which will be perceived as a concrete step toward the rate normalization expected to happen sometime in the second half of the year. According to current implied probabilities, the likelihood of a September action is being priced in. This week again, we heard Dallas Fed’s Fisher calling for an early and gradual normalization rather than a late and faster action. These comments reinforced the USD appetite. Although Fisher’s statement favored a softer normalization process, it didn’t matter much to USD trader whereas the critical question is how far we are from the beginning of the first rate hike, regardless of what will happen onwards.
While traders add comfortably to EUR/USD short positions on ECB/Fed divergence, the main short-term risk for leveraged short EUR bets is Fed remaining “patient” and a potential relief rally on the second half of next week.
EUR/GBP’s timid recovery
After hitting 0.70143 on March 11th, the EUR/GBP recovers timidly toward 0.71500 on parallel GBP debasing. The formation of the bullish engulfing line yesterday is however threatened by the threat of hanging man, signaling that the fresh bullish demand is already waning. We see limited upside in EUR/GBP with offers seen solid at 0.72000/0.72486 (optionality / Fib 23.6% on Dec’14/Mar’15 drop). On the downside, 0.70 support remains challenging.
EUR/GBP recovery seen limited
The Risk Today
Peter Rosenstreich
EURUSD
EUR/USD's rebound close to the support implied by the recent lows at 1.0495 continues to be unimpressive. Support lie at 1.0336 (31/03/2003 low). Hourly resistances for a short-term bounce can be found at 1.0694 (12/03/2015 high) then 1.0717 (10/03/2015 high). In the longer term, the symmetrical triangle favors further weakness towards parity. As a result, any strength is likely to be temporary in nature. Key resistances stand at 1.1534 (03/02/2015 high) and 1.1679 (21/01/2015 high). Key supports can be found between 1.0199 and 1.0074.
GBPUSD
GBP/USD has weakened after its unsuccessful recovery rally. The short-term technical structure is negative as long as prices remain below the resistance at 1.5317 (17/02/2015 low). A key support stands at 1.4846 (intraday low) and 1.4814 (09/07/2013 low). In the longer term, the recent rise is seen as an oversold rebound, whose upside potential should be capped by the key resistances at 1.5620 (31/12/2014 high) and 1.5826 (27/11/2014 high). A strong support stands at 1.4814 (09/07/2013 low).
USDJPY
USD/JPY bullish momentum has improved but prices have thus far failed to decisively break resistance at 121.85. Resistance can be located at 122.03 (10/03/2015 high and major resistance stands at 124.14 . Hourly supports can be found at 120.83 (rising hourly channel). A long-term bullish bias is favored as long as the key support at 110.09 (01/10/2014 high) holds. Even if a medium-term consolidation is likely underway, there is no sign to suggest the end of the long-term bullish trend yet. A gradual rise towards the major resistance at 124.14 (22/06/2007 high) is therefore favored. A key support can be found at 115.57 (16/12/2014 low).
USDCHF
USD/CHF is moving in a broad horizontal range between the support at 0.9982 and the resistance at 1.0118. However, we favor further strength as long as the support at 1.000 holds. Monitor the resistance at 1.0240. Another supports can now be found at 0.9831 (24/12/2015 low) and 0.9732 (06/03/2015 low). In the longer-term, the bullish momentum in USD/CHF has resumed after the removal of the EUR/CHF floor. The break of the key resistance at 0.9554 (16/12/2014 low) opens the way for a further rise towards the other key resistance at 1.0240 (14/01/2015 high). A key support can now be found at 0.9374 (20/02/2015 low, see also the 200-day moving average).
