Friday, February 5, 2010

BOE and ECB policy decisions in focus today

Briefing
The dollar was steady in Asia Thursday, after yet another lackluster session which saw the dollar trade narrow ranges. Dollar-yen opened around Y90.99, before making marginal gains to Y91.05. The pair then edged off towards the session lows at Y90.80, before range trading in light flows. Traders noted the upside appears capped by exporter offers from Y91.10, with bids building from around Y90.60/70 with larger interest seen toward Y90.50 and stops below there.

Euro-dollar also slipped from an early high of $1.3903 to hit its session low of $1.3867, before bouncing. Late in the session, euro-dollar was little changed at $1.3888.

The release of disappointing New Zealand employment data, jumping to 7.3% from 6.8%, provided for early risk-off flows, with sales of Kiwi-yen weighing on other yen pairs, a fall of 0.7% in Australian retail sales adding to this scenario. Sovereign demand aided an Aussie correction, helped by strong buildings approvals data.

The Bank of England and European Central Bank policy decisions provide today's main highlight. Both are expected to remain unchanged though the BOE decision on future QE is the main focus.

Euro
Euro-dollar opened Asia around $1.3893, off Wednesday's pullback lows of $1.3889, the rate having corrected off intraday highs of $1.4026 (European morning) on concerns over Spanish and Portuguese debt. Release Thursday of better than expected ADP data has led to some analysts adjusting their forecast for Friday's NFP data which has also benefited the dollar. Euro-dollar initially edged up to $1.3903 before reversing as rate came under pressure from cross yen sales, prompted by release of the disappointing NZ employment data. The rate initially met demand at $1.3880 before a secondary push squeezed the pair on to a low of $1.3866.

A decent sized $1.3850 barrier was seen within touching distance but was said to have attracted decent protective demand ahead. This level is expected to remain in focus into European trade. Euro-dollar then recovered through the balance of the Asian session, meeting resistance around $1.3895 ($1.3894 76.4% $1.3903/1.3866). Support is seen from the overnight low through to the mentioned barrier at $1.3850, with tight stops noted on a break. Resistance remains at $1.3895/05, stops above $1.3910.

Asian traders note that euro demand interest is seen thinning, though admit that there are some bids still around. They suggest that the much publicized $1.3850 barrier is vulnerable. Stops are noted below this level, though expect some profit take demand to quickly emerge should any downmove look pressured.

RES 4: $1.4218 Low 22 Dec
RES 3: $1.4195 High 25 Jan, 21-day moving average
RES 2: $1.4132 38.2% retracement, while $1.3853 remains base
RES 1: $1.4026/32 High 3 Feb & First Fibonacci level, Low 21 Jan

CURRENT LEVEL: $1.3895

SUP 1: $1.3853 Low 1 Feb
SUP 2: $1.3825 Low 22 June
SUP 3: $1.3801 50% retracement of March/Dec rally
SUP 4: $1.3736/50 50% post-Oct 2008, 61.8% April/Dec rally, Low 16 June


Yen
Dollar-yen finally took out the Y91.00 level in yesterday's trade buoyed by higher US yields, the weakness in a Japanese automakers share price and general dollar recoveryto a high of Y91.28. Overnight, there was not much action in the dollar-yen as the market drifted lower to trade down to Y90.79 as the crosses were sold off. The overnight range was Y90.79-91.06.

There is talk of plenty of selling interest placed near yesterday's high with potential for some more stop losses behind. Expect there to be some tech resistance at Y91.45 area (50% Fibonacci retracement). On the downside initial support at Y90.75 but bigger support at Y90.10 then Y89.85 (the latter being the top of the Ichimoku cloud line).

RES 4: Y92.65/70 High 11 Jan, 200-day moving average
RES 3: Y92.00/05 61.8% retracement of Jan decline, High 14 Jan
RES 2: Y91.87 High 21 Jan
RES 1: Y91.28/45 High 3 Feb, 50% retracement of Jan decline & Kijun line

CURRENT LEVEL: Y90.91

SUP 1: Y89.80 Top of the Ichimoku cloud
SUP 2: Y89.14 Low 27 Jan
SUP 3: Y88.80/95 Base of the Ichimoku cloud, Low 18 Dec
SUP 4: Y88.24 61.8% retracement of the 26 Nov rally


Cable
Opened Asia around $1.5890, off Wednesday's pullback lows at $1.5886, the rate having seen intraday highs during the european morning of $1.6070 before disappointing CIPS data deflated the enthusiasm. Rate initially pushed up to mark session highs at $1.5921, as euro-sterling came under early sell pressure, with traders seen adjusting positions ahead of today's BOE rate decision (1200GMT). Market expecting no change in rates but decision on QE will be in focus.

A softer tone in Asian equities prompted market to pare back risk, the release of disappointing NZ employment data, along with poor Australian retail sales also added weight, with cable breaking back below the figure, marking session lows at $1.5882 in late Asia, with early Europe taking it on to $1.5868. Rate has since recovered, currently trading around $1.5897 as it continues to gain buoyancy from euro-sterling weight. Demand seen placed toward recent lows at $1.5850, a break to expose another band of strong support at $1.5935/30. Resistance now seen at $1.5900/10, more at $1.5920/25.

RES 4: $1.6245/65 200, 100-day moving average
RES 3: $1.6220 55-day moving average
RES 2: $1.6145 21-day moving average
RES 1: $1.6080 Low 22 Jan

CURRENT LEVEL: $1.5894

SUP 1: $1.5833/50 Low 30 Dec, Low 1 Feb, Bollinger band base
SUP 2: $1.5770 Low 28 Sep
SUP 3: $1.5749 38.2% retracement of $1.3659 to $1.7041
SUP 4: $1.5708/21 Low 13 Oct, High Dec 2008 & 50% of $1.44 advance

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