Forex News and Events:
The FX markets are dominated by decent USD sell-off. Euro and sterling pick momentum on the upside before the ECB and BoE meetings due on Thursday. The good PMI readings should keep the appetite in place through the US session. In Switzerland, the franc rallies on better than expected UBS earnings in Q1, while CAD traders are in wait-and-see mode before Canadian trade data. A second month of surplus should boost the CAD-bulls.
EUR and GBP rally
The USD aggressively sold-off in European opening. EUR/USD pulled out the 1.3906 resistance after services and composite PMI showed encouraging performance in April across the Euro-zone. Combined to improvement in EZ unemployment (from 11.90 to 11.80) and the pick-up in April inflation estimates (from 0.5% y-o-y to 0.7%), Draghi has room for no action on Thursday ECB meeting. For this reason, we do not see the QE threats to concretize this week. On the EUR/USD chart, the key resistance stands at 1.3967 (year high), stops trail above. We see option bids at 1.3950, 1.4000, and 1.4025 for today expiry. On the downside, support is seen at 1.3800 / 18 / 40 (optionality / 50-dma / 21-dma).
Across the Channel, GBP/USD hit the fresh high of 1.6953 (at the time of writing). The next key resistances now stand at 1.7000 (psychological level) and 1.7043 (five year high). Trend and momentum indicators remain steadily bullish, while the 30-day RSI (71%) stepped once again in the overbought territory, corrective shorts should line up above 1.6950. Moving forward, traders chase dip buying opportunities given the strength in GBP trend. Thursday’s BoE meeting is likely to be a non-event. The BoE officials are expected to remain on their forward guidance, while markets should keep the pressure tight on sooner rate normalization.
EUR/GBP remains quiet below the 21-dma. MACD (12, 26) will remain marginally bullish for a daily close above 0.82005. On the downside, the 30-day lower Bollinger band (0.81903) should signal exhaustion in GBP purchases.
Canada to release a second month of surplus
Canada will publish the international merchandise trade figures for March today, a second month of surplus should keep the Canadian dollar well sustained versus USD. The consensus is a surplus of CAD 0.40bn vs. CAD 0.29bn a month ago. Option related offers wait to be activated below 1.0900 in today’s expiry. USD/CAD remains offered below the 21-dma (1.0980), the trend momentum is marginally on the downside. The next key support is placed at 1.0807 (Fibonacci 61.8% on 2009-2011 drop).
Swissy strengthens
USD/CHF drops to 0.8736 (lowest since March 19th) as UBS – Switzerland’s leading bank – beat the market estimates in Q1 with CHF 1.05bn net income in the first quarter (vs. USD 885mn exp.). UBS also announced its plans to found a holding co. and pay a minimum 0.25 cents per share. News boosted demand in Swiss franc. Technically, bearish USD/CHF trend gains momentum, the next key resistance is the year low of 0.8699. EUR/CHF tests the Fibonacci 23.6% support of 1.21729 on Jan-March drop. Next supports lie at 1.21413 (April low), then 1.21044 (year low).
Today's Key Issues (time in GMT):
2014-05-06T12:30:00 CAD Mar Int'l Merchandise Trade, exp 0.40B, last 0.29B2014-05-06T12:30:00 USD Mar Trade Balance, exp -$40.0B, last -$42.3B
2014-05-06T14:00:00 CAD Apr Ivey Purchasing Managers Index SA, exp 54.5, last 55.2
2014-05-06T14:00:00 USD May IBD/TIPP Economic Optimism, exp 47.9, last 48
The Risk Today:
EUR/USD
EUR/USD continues to consolidate after its rise from 1.3673 (04/04/2014 low) to 1.3906 (11/04/2014 high). The technical structure remains supportive as long as the support at 1.3780 (09/04/2014 low) holds. Furthermore, Friday's intraday bullish reversal confirms a persistent buying interest. Monitor the key resistance at 1.3906. An hourly support can be found at 1.3859 (intraday low). In the longer term, EUR/USD is still in a succession of higher highs and higher lows. However, the recent marginal new highs (suggesting a potential long-term rising wedge) indicate an exhausted rise. As a result, we see a limited upside potential, especially given the key resistance at 1.3967 (13/03/2014 high).
GBP/USD
GBP/USD has broken the key resistance at 1.6823, opening the way for a test of the major resistance at 1.7043. Friday's weakness has almost been fully erased confirming a persistent buying interest. Supports stand at 1.6823 (02/05/2014 low) and 1.6763. An hourly resistance lies at 1.6920. In the longer term, prices continue to move in a rising channel. As a result, a bullish bias remains favoured as long as the support at 1.6661 (15/04/2014 low) holds. However, we are reluctant to suggest an upside potential higher than the major resistance at 1.7043 (05/08/2009 high), especially given the general overbought conditions.
USD/JPY
USD/JPY is trying to bounce near the support 101.87. An hourly resistance for a short-term bounce lies at 102.36 (intraday high). Another resistance stands at 103.02. A key support can be found at 101.20. A long-term bullish bias is favoured as long as the key support area given by the 200 day moving average (around 101.02) and 101.33 (11/04/2014 low, 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 remains weak as can be seen by the breach of the support at 0.8771 (see also the rising trendline). Despite yesterday's stabilisation near this support, a break of the key resistance at 0.8862 is needed to negate the current short-term bearish momentum. Another support can be found at 0.8744. From a longer term perspective, the structure present since 0.9972 (24/07/2012) is seen as a large corrective phase. However, a decisive break of the key resistance at 0.8930/0.8953 is needed to validate a bullish reversal pattern.
