Ahead Of The Open: USD Looks To Recover

There are signs that the dollar is beginning to slightly recover vs most of its G10 counterparts, while staying under a moderate amount of pressure, and for the time, continues to stay in close to the lowest point of yesterday’s post-FOMC downdraft. The Fed’s decision not to taper was unexpected by the market. Chairman Bernanke’s comments after the meeting contributed to the dollar’s difficulties by seeming to delay tapering. Bernanke also stated that most of the improvement in the unemployment rate is because of job creations, and not the reduction in the labor force participation rate. While ‘tapering’ action being the main headline of FOMC’s next meeting (29 -30 Oct.), it is apparent that US economy must achieve consistently better results for that to occur. A lot will have to change for the dollar and rise above these recent lows. It is a waiting game to see if the dollar is approaching to a longer-term low, although I think the dollar will maintain a generally negative tone in the coming sessions. In my view, the dollar will weaken further against its G10 counterparts, and it is expected to stay under pressure during the next few sessions.

The pound gave some of its recent gains against the dollar but is still up from the 1.6000 level since Wednesday’s Fed decision. The weakness yesterday follows from surprisingly weak retail sales data (-0.9% mom vs 0.4% mom exp.).

Meanwhile in Japan the trade deficit narrowed ¥960.3bn, vs the market estimate of ¥1113.8bn. The month before had showed a revised deficit of ¥1,027.9bn. The dollar was stronger throughout the day against the Japanese yen despite the improved trade data.

Later today. In Europe, Eurozone consumer confidence for September is expected to improve to -14.5 vs -15.6 from previous reading. St. Louis Fed’s President James Bullard speaks about the economy and monetary policy in NY. It will be interesting to hear what he says about Fed’s decision to keep unchanged its monthly bond-purchase program. The Bank of Canada’s core measure of CPI for August is expected to rise by 0.2% mom vs a flat figure the previous month, with the yoy rate to fall slightly to 1.3% in August from 1.4%. The German federal elections will take place this Sunday. Mrs. Merkel looks very likely to win another four-year term as a Chancellor. Such a result should support the EUR, although it is probably discounted in the price already to a large degree.

The Market
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EUR/USD moved sideways yesterday, pausing after its prior rally. During the European morning the pair remains between the 1.3517 (S1) and 1.3564 (R1) levels, where a re-boost by the longs should drive the action towards February’s highs at 1.3706 (R2). The alternative scenario suggests that since the rate moved far away from the uptrend line and the RSI is probably ready to exit its overbought zone, a short-term correction towards the trend line might occur.

• Support is found at the 1.3517 (S1) level, followed by 1.3448 (S2) and 1.3400 (S3)
• Resistance levels are the level of 1.3564 (R1), followed by 1.3706 (R2) and 1.3846 (R3). The latter two found from the daily chart.

moved significantly higher during yesterday’s session, recovering Wednesday’s losses. The pair managed to return into the blue upward sloping channel, while the 20-period moving average found support at the 200-period moving average. At the time of writing the rate lies above the 99.13 (S1) level, and a continuation of the impulsive wave should challenge once more the psychological level of 100.00 (R1). However, during the overnight session the pair found resistance at the 61.8% retracement level of the previous corrective wave and in my opinion we should wait for an upward break of it in order to confirm the aforementioned scenario.

• Support levels are at 99.13 (S1), followed by 97.86 (S2) and 97.00 (S3).
• Resistance is identified at the psychological round number of 100.00 (R1), followed by 100.59 (R2) and 101.53 (R3).

moved noticeably higher, breaking the 0.8423 level (yesterday’s resistance). As we said in previous comments, a clear break above that level accompanied with a positive MACD value might be the beginning of a newborn correction. Currently, the pair is still in a downtrend channel and also below the 200-period moving average, but MACD’s indications alongside with the bullish cross of the rate above the 20-period moving average, increase our suspicions that the correction might have already begun.

• Support levels are identified at 0.8423 (S1), 0.8355 (S2) and 0.8323 (S3) respectively. The last one is found from the daily chart.
• Resistance is found at the levels of 0.8453 (R1), 0.8503 (R2) and 0.8551 (R3).

continued testing stubbornly the 1368 (R1) resistance level during the entire session yesterday. If bulls find the strength to overcome that barrier, upside extensions should be triggered towards the resistance levels of 1394 (R2) and 1415 (R3) respectively. The MACD oscillator lies in its bullish zone, above its trigger line, enhancing the probabilities for a further upward movement.

• Support levels are at 1337(S1), followed by 1305 (S2) and 1271 (S3).
• Resistance is identified at the 1368 (R1) level, followed by 1394 (R2) and 1415 (R3).

fell sharply after finding resistance at the 108.85 (R2) level and the blue downtrend line. In previous comments we mentioned that the downtrend was not confirmed by any other indicator, but today the MACD just poked its nose below both the zero and the trigger lines. Additionally, the price lies below both the 20- and 200-period moving averages, confirming WTI’s bearish attitude.

• Support levels are at 105.23 (S1), 103.44 (S2) and 102.62 (S3).
• Resistance levels are at 106.71 (R1), followed by 108.85 (R2) and 110.58 (R3).