Forex Daily Wrap: Market Prepares for FOMC

The pair finished the session lower, amid a firmer USD ahead of the FOMC minutes releas. Profit taking flows in the GBP related cross which moved back below the 100 DMA line after topping the key technical level yesterday. Even hawkish comments from the ECB's Weidmann failed to support the pair, after the head of the German central bank said that forward guidance will not change ECB course of action. In terms of EU related commentary, GR and IT paper underperformed this morning, after Sueddeutsche Zeitung reported that Greece's 3rd aid programme will likely be financed at least in part by the EU budget. Moreover, Italy's Berlusconi is said to have given Italian PM Letta and his allies ten days to find a solution that will allow him to remain in politics or withdraw from the coalition if Senate votes Berlusconi out of Parliament. At the same time, NE/GE 10s spread tightened after Fitch affirmed Netherlands at AAA, the outlook negative.

Technically: supports are seen at the 10DMA line at 1.3338, 1.3314 (Aug 19th low) and then at 1.3300. On the other hand, resistance levels are seen at the 30-Day Upper Bollinger level at 1.3439, 1.3456 (Feb 14th high) and then at the 76.4% Fibonacci retracement of the 1.3711 to 1.2740 move at 1.3481.

GBP/USD

In spite of a firmer USD, the pair finished the session higher. In part driven by comments by the Chief Global Economist at S&P who said that BoE’s introduction of forward guidance may cause concerns that it is going soft on inflation (when inflation has been consistently higher than target). Furthermore, EUR bulls took profits following yesterday’s surge above the 10 0DMA for the GBP related cross, which in turn saw EUR/GBP move back below the key technical level.

Technically: support levels are seen at 1.5629 (Aug 20th low), 1.5610 (Aug 19th low) and then at 1.5600. On the other hand, resistance levels are seen at 1.5705 which is the 30-Day Upper Bollinger level, 1.5723 (Jun 18th high) and then at the 61.8% Fibonacci retracement of the 1.6380 to 1.4814 move at 1.5782.


USD/JPY

The pair finished the session higher, amid interest rate differential flows as market participants positioned for the release of the FOMC meeting minutes. There was little in terms of Japan specific commentary, but the severity level of the Fukushima leak (3 on the INES scale) was raised due to the Aug. 19 storage tank leak which has leaked 300 tons of highly radioactive water.

Technically: supports are seen at 97.13 (Aug 21st low), the 61.8% Fibonacci retracement of the 95.81 to 98.66 at 96.90 and then at 96.50. On the other hand, resistance levels are seen at 98.43 which is the Kijun-Sen line, 98.66 (Aug 15th high) and then at the Ichimoku Cloud Base at 98.75.