Washington failed to find a resolution to the debt ceiling problem however there remains encouraging comments from key Senators indicating that hope is not lost, even at this eleventh hour. As such, the price action may remain on pause until further details are known due to the two sided risk currently in the markets. The international community are growing concerned though, unsurprising since they are the holders of the US debt which risks defaulting unless the petty bipartisan politics are put to one side and the country begins to operate properly again. With Japan and the US on bank holiday on Monday, conditions are likely to be quite thin and jumpy, with a tendency towards news volatility, although this does buy the US one more day before bond vigilantes can step in to speed things up.
This week’s data focus is on the following releases:
Monday Oct 14 – JPY and USD bank holiday
3:30am CNY CPI
11:00am EUR Industrial Production
All Day EUR Eurogroup Meetings
Tueday Oct 15
2:30am AUD Monetary Policy Meeting Minutes
10:30am GBP CPI
11:00am EUR German ZEW Economic Sentiment
All Day EUR ECOFIN Meetings
2:30pm USD Empire State Manufacturing Index
4:00pm USD FOMC Member Dudley Speaks
Wednesday Oct 16
10:30am GBP Claimant Count Change
10:30am GBP Unemployment Rate
10:30am EUR CPI
11:30pm USD FOMC Member George Speaks
Thursday Oct 17
10:00am EUR Current Account
10:30am GBP Retail Sales
2:30pm USD Unemployment Claims
4:00pm USD Philly Fed Manufacturing Index
6:45pm USD FOMC Member Evans Speaks
6:45pm USD FOMC Member George Speaks
Friday Oct 18
3:00am AUD RBA Gov Stevens Speaks
4:00am CNY GDP
4:00am CNY Industrial Production
8:35am JPY BOJ Gov Kuroda Speaks
8:00pm USD FOMC Member Evans Speaks
9:40pm USD FOMC Member Dudley Speaks
All times are London time (GMT+1)
USD% Index
The dollar is currently quite vulnerable, having previously been a buy-the-dips, the political situation will surely have delayed the taper until the effect of the shut-down on the US economy is known. As such, the bullish breakout may turn into range-bound conditions with a tendency towards further downside as the expectation of the taper pushes further and further away. I am neutral USD between the recent ranges
USD% Index Resistance (EURUSD support): EURUSD 1.3525, 1.3492
USD% Index Support (EURUSD support): EURUSD 1.3562, 1.3590
EUR% Index
Having looked ripe for a reversal, the rally in EURGBP has meant that the EUR% index is actually still only in the middle of a very wide bullish channel compared to the GBP and CHF indexes, which are currently very close to an ideal long entry price for trend continuation. That doesn’t mean that the EUR% index won’t return to bullish trend, merely that it has much further to go before break of trend if the the dollar strengthens, which may be a bit of a stretch to reach in the current conditions. Range-bound trading with a slight bullish lean seems the preferable outlook until more is known regarding the US situation. EUR% trend is still bullish
EUR% Index Resistance: EURUSD 1.3600, 1.3639, 1.3650
EUR% Index Support: EURUSD 1.3480, 1.3450
EURUSD Trade Positioning
Short from 1.3565, stops at 1.3655 although this position will flip to long if this weeks gap is closed
EURGBP Trade Positioning
Long from 0.8468, stops at 0.8373
JPY% Index
Last week’s Yen selling means the the JPY% index is very nearly back to the major trend line that was recently broken to the upside. This may meet some Yen bids and dampen Yen pair buying for the mean time, particularly if further poor news from Washington emerges due to the flight to safe-haven during risk off. Unsure, range-bound trading seems likely for this index also. I am bearish JPY until USDJPY 98.70 is met, then expect range-bound conditions
JPY% Index Resistance (USDJPY Support): USDJPY 97.96, 97.42, 97.37
JPY% Index Support (USDJPY Resistance): USDJPY 98.73, 99.70
USDJPY Trade Positioning
Long from 97.86, stops at 96.13
GBP% Index
The bearish retracement recently seen in the GBP% index has met a significant bullish trend line which seems to have halted proceedings and we remain at a critical juncture for the pound. There is another major trend line not too far below current levels (GBPUSD 1.5850) which may make an ideal long entry should dollar weakness emerge again. Critical CPI data is on the schedule this week as is the unemployment rate, both of which are key data points for the BoE’s stimulus forward guidance, although the pound seems stuck in a win win situation with poor data playing into the hands of stimulus reduction speculation, while good data appeals to fundamental traders. Trend remains inside a bullish channel, although a break of 1.5850 would signal a trend change
GBP% Index Resistance: GBPUSD 1.5975, 1.6025, 1.6100
GBP% Index Support: GBPUSD 1.5900, 1.5850
GBPUSD Trade Positioning
Short from 1.5967, stops at 1.6185 although a test of 1.5850 will reverse this position
AUD% Index
Having recently broken out of a bullish channel, the AUD% index has simply continued rallying within a less steep, narrowing bearish wedge. Technically this suggests a break through trend lines will more likely happen to the downside, however the markets are in quite an unusual place currently so anything is possible given the shaky political and economic backdrop. I am bearish AUD on a break of the lower wedge trend line. Until the a push higher seems preferable.
AUD% Index Resistance: AUDUSD 0.9500, 0.9534
AUD% Index Support: AUDUSD 0.9421, 0.9400
CHF% Index
The CHF% index came very close to meeting major bullish channel support on Friday which may mean that we could see a test of this trend line early this week. There is becoming a growing reason to sell dollars so short USDCHF could be a good way to achieve that aim. 0.9130 would be a good level. Any significant push through that level would signal a medium term change of trend but dollar sentiment seems to be on the slide to aid support.
Trend remains inside a bullish channel and set to test major bullish support
CHF% Index Resistance (USDCHF support): USDCHF 0.9089, 0.9075, 0.9059, 0.9040
CHF% Index Support (USDCHF resistance): USDCHF 0.9128
By Mark Lewis
