FOMC, ECB, BOE decisions, EU/US jobs,NFP, US GDP,China manufacturing data! All making for a big week!

US$ looking soft at the beginning of what will be a volatile week.

It is going to be a big week with a plethora of data to provide all the volatility you could wish for! The US$ is looking soft again and it seems that the Jpy could regain some lost ground as doubts grow as to whether Mr Abe can carry out his proposed economic reforms. Leading off the weeks heavy economic calendar today will be the US Pending Home Sales, followed tomorrow by the German CPI, Consumer Confidence, EU Business Climate, Business Confidence, Case Schiller Home Price Index, US Consumer Confidence. Stay nimble!

EUR/USD: 1.3278

The dollar finished  on a relatively steady note on Friday, having traded a tight 40 point range against the Euro,with one eye on a very heavy schedule of data in the coming week. Improved Consumer Sentiment data continued the recent theme of mixed economic readings which is clouding expectations as to when the Fed might wind down its stimulus program.  No one expects any imminent QE tapering to be announced this week after expectations were watered down by the relatively dovish statement after the WSJ article last Thursday.

We may get some clarification after Wednesdays FOMC meeting, which will be the main focus of the week, and the market will be paying very close attention to the wording of Bernanke’s Press Conference for any hint into when winding back of the stimulus programme is likely to commence.

Aside from the FOMC  there will also be interest rate decisions from the ECB and BOE, and then on Friday, the US Unemployment/NFP data. On top of all this, EU unemployment, the US GDP, and a host of other data are due, so it is going to be a busy few days.

Technically, nothing has changed since Friday.

The way still looks open for further gains to 1.3300 and possibly higher, towards the downtrend resistance now at around 1.3350, which, in turn, comes ahead of the 200 WMA at 1.3405 and the 19th June high at 1.3415. While the daily indicators still show positive momentum, the 4 hour charts do not appear to be quite so positive, which suggests that we could be in for a choppy session today, possibly with a mild upside bias. Above 1.3415 would be a different matter and would suggest that there is plenty of upside potential. We will deal with that nearer the time.

On the downside, 1.3250 remains the initial support, having traded down to 1.3252 on Friday, a break of which would head back to rising trend support, currently at 1.3225. Below this would see a decline, back below 1.3200 to 1.3165 – formerly 61.8% resistance of the move from 1.3415/1.2753 – and also 23.6% of 1.2752/1.3296.

Overall, a fairly neutral stance is required to start the week, but with the US$ Index (DXY) still pointing to further dollar weakness, I suspect that at some stage are going to see the Euro take a look at the 1.3300/50 range and possibly a bit higher towards the 1.3415 resistance. Stay flexible.

Economic data highlights will include:

M: US Pending Home sales

T: German CPI, Consumer Confidence, EU Business Climate, Business Confidence, Case Schiller Home Price Index, US Consumer Confidence

W: German, EU Unemployment, EU CPI, US ADP Unemployment, Personal Consumption, GDP, Chicago PMI, FOMC I/R Decision/Press Conference

T: EU Mfg PMIs, ECB IR Decision/ Press conference, Jobless Claims, US Mfg PMI, Construction PMI, ISM Mfg PMI

F: EU PPI, US CPI, NFP/Unemployment, Personal Spending, Factory Orders

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EUR/USD: Daily

USD/JPY: 98.30

The dollar traded heavily on Friday, (taking its cue from the 2.97% fall in the Nikkei), falling to 97.95 at one stage, and it looks as though there is the possibility of more of the same in the days ahead.

Weaker US Treasury yields did little to help the dollar, as the chances of any tapering from the Fed appear to be on hold for now, while at the same time doubts are growing over whether the current Japanese reflationary monetary policy will actually be successful in the long term. The market already has one eye on the possibility that Japan’s PM may rethink the proposed sales tax hike, on concerns that it could derail the economic upturn, which in turn could undermine market confidence in the current reflationary monetary policy, potentially undermining the Nikkei and possibly driving the Yen back to higher ground.

As with last week, I suspect that we will need to continue to trade from the short side both against the dollar and on the crosses. The dollar has come down in more or less  straight line since topping out at 100.44 last week, leaving the short term charts oversold, so we could see some minor bounces, which I suspect would be selling opportunities.

The points to watch on the topside are at 98.55 (23.6% of 100.44/97.95) and then 98.89 (38.2%), 99.20 (50%) and 99.48 (6108%). With the hourly charts having now become oversold, some sort of near term short squeeze is possible, although whether the dollar can get back over 99.00 looks a little doubtful – at least for Mondays trade. Further out, we closed the week below the 200 DMA (98.38) and the 4 hour, daily and weekly charts are all pointing south.

Below Fridays low would see a test of 97.55, which should be reasonable support, being the base of the daily Cloud. However there will be plenty of stops placed under here which could propel a run towards the Fibo support  at 97.38 (23.6% of 77.10/103.73), and below 97.00, to the weekly Kijun Sen at 96.88. If we go under that we could see some real action on the downside and I cannot see a great deal to hold the dollar up until the rising trend support, currently at 94.40.

The daily charts may be in the process of forming a major Head Shoulder top with a neckline at around 94.50 (see chart below). If that came about, the Japanese authorities would not be amused as the consequent objective would be somewhere around 84/85! Watch this space!!

Economic data highlights will include:

M: Retail Trade

T: Japan Unemployment, Industrial Production

W: Nomura Mfg PMI

T:

F:

AUDJPY: 91.05 I have been harping on for several weeks about the cross heading lower and it has not worked out -yet -, instead trading in a range of 90-93. We are now sitting in the middle, but I suspect a move to the downside may now not be so far away and would prefer to be short with a SL placed at around 93.35, above the recent 93.13 high, as well as above the 200DMA/declining trend resistance at around 93.25. Thus selling into rallies is preferred, looking for a drop to 89.90 (50% of 74.44/105.52) and beyond there to 88.62 (19 March high). Eventually, I suspect that 86.26 (61.8%74.44/105.52) could come into view.

EURJPY 130.55.The cross did much as we expected last week in trading roughly a broad 130/133 range but fell sharply in the latter half of the week from 132.70 to where it is currently testing rising trend support at  130.10. A break would lead towards 129.75 (38.2% of 124.95/132.70) below which would hint at a steeper decline towards 129.00.

The indicators are pointing mildly lower, but if 129.75/130.00 holds, then we are in for more range trading below 133. A topside break would target the May 133.79 high, but currently seems a little less likely.

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USD/JPY: Daily

GBP/USD: 1.5380

Having spiked up to the resistance at 1.5433 first thing on Friday, Cable has since returned to the congestion area that we discussed earlier last week, and finished in the 1.5380/90 area.

The improved data over the last couple of weeks has probably killed any chance of any further easing at the BOE I/R meeting on Thursday, and for the time being, Cable looks to be reasonably well supported but direction will largely be dictated by the plethora of data to come from the EU and US.

Technically, 1.5388 is 61.8% of 1.5750/1.4813 and as we said on Friday, is currently acting as a bit of a magnet, but a sustained break could take us back towards the resistance at 1.5430. Beyond this, it could begin to accelerate towards 1.5465 (daily cloud top), 1.5500 and potentially to 1.5525 (76.4% of 1.5750/1.4813) or even the 200 DMA at 1.5565.

The downside has minor support at 1.5350, which held once again on Friday, and below here at 1.5300, beyond which, would see it head back to the 100 DMA  now at 1.5275, but looks a little unlikely again for a while.

As with Friday, the 4 hour charts are not suggesting that this rally has particularly strong legs and it may be that we have a session of chopping around below 1.5430, and thus, I suspect that 1.5350/1.5430 could cover it for much of the day. The dailies look as though they may want to head a bit higher, so buying dips with a tight SL somewhere below the minor rising trend support, currently at around 1.5320, is the favoured strategy, looking for an eventual break of the 1.5430 level for a run towards 1.5500.

Economic data highlights will include:

M:

T:

W:

T: BOE IR Decision/APP Facility,

F: UK Construction PMI

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GBP/USD: Daily

USD/CHF: 0.9282

The dollar made another 1 month low on Friday at 0.9262, but recovered by the end of the session to trade close to its opening levels.

It is currently sitting right on Fibo support at 0.9278 (76.4% of 0.9130/0.9750) although further weakness back towards 0.9260  looks possible, below which would break the important rising trend support and head towards 0.9235 and possibly to 0.9130 (13 June low)

The topside will continue to find sellers at 0.9320 ahead of 0.9340 and 0.9355, where the 200 DMA currently sits and should act as good resistance, although I am doubtful of seeing it early in the week.

Economic data highlights will include:

M:

T:

W:

T: National Holiday

F:

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USD/CHF: DAILY

AUD/USD: 0.9265

The Aud finished a fairly directionless session on Friday near the top end of the 0.9000/0.9300 range that we have been discussing recently and it looks as though this could remain intact, at least for the first half of the coming week.

Above 0.9300, the key level to watch is at 0.9345 (26 June high), a break of which would probably signal a more concerted move to the topside. It appears that any strength in the Aud could come from softer US data, which would drive the US dollar lower.  Any gains in the Aud/Usd could be muted somewhat though, as it seems that selling pressure could emerge through a lower Aud/Jpy. We shall have to wait and see, but for the time being I suspect that 0.9300/30, if seen, could turn out to be a bit toppish for the Aud.

If wrong, beyond 0.9345, the Aud could head higher towards 0.9368 (23.6% of 1.0582/0.8998), above which, the descending trend resistance is now at 0.9410. If this gets taken out, look for a strong acceleration towards 0.9600. With the RBA due to meet next week (6 August) and some ongoing concerns of an interest rate cut and a slowing of economic growth in China, the upside for the Aud would currently appear a little limited.

On the downside, the initial bids are to be seen at 0.9225, and below 0.9200, at the rising trend support at 0.9155.

For the time being a fairly neutral stance is required, so the bias is to continue to trading the recent range between 0.9155/0.9300 with a relatively tight stop placed on either side. Ultimately, direction this week is likely to be provided by the direction of the US$ although there is some local data, and from China, Thursday sees the Official and the HSBC Manufacturing PMI’s. Any further signs of weakness in China would put a dent in the Aud, and given last week’s weaker flash reading, that is quite a possibility.

Economic data highlights will include:

M:

T: Building Permits

W: HIA New Home Sales, Private Sector Credit

T: AIG Performance Mfg Index, NBS Mfg PMI, HSBC Mfg PMI

F: PPI, Retail Sales

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AUD/USD: Daily

NZD/USD: 0.8082

The Kiwi remains pretty buoyant at the end of the week, just below its Friday 0.8103 high after the RBNZ left rates unchanged, but signalled the possibility of a rate hike in the months to come in order to cool inflationary pressures and the housing market.

The momentum indicators points higher and above Fridays high could see a run towards the 100 DMA at 0.8150 and possibly the descending trend resistance/ 50% pivot of 0.8675/0.7682 at 0.8170. Beyond that would accelerate towards the 200 DMA at 0.8225.

The support is to be found now at 0.8050 although back below here could see a swift drop back towards 0.8000.

As with the Aud, it will be offshore factors driving the Kiwi this week, but the bias looks to be to be buying dips into the 0.8000/50 area with a SL placed under 0.7980.

Economic data highlights will include:

M:

T: Building Permits

W: Business Confidence

T:

F:

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NZD/USD: Daily

USD/DXY: 81.66

The DXY still appears to be headed lower and looks as if it could test the strong 81.50 (76.4% of 80.49/84.75) support area  (200 DMA :81.47) . If this is taken out then we could see further weakness back towards 81.00 and possibly even to the June lows at 80.49.

The daily and weekly indicators both suggest that further weakness lies ahead for the dollar which will certainly be the case if the upcoming data remains soft. No rate change is expected from the Fed this week, and the main driver is likely to be the NFP on Friday (exp184K) although there is plenty of room for some action before then.

If the dollar does turn higher, the resistance levels on the index to watch are at 82.00, 82.15 and 82.40. The 100 DMA is at 82.66 but currently looks too far off to worry about.

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USD/DXY: Daily