The euro is hovering around 1.2690 pivot point for the week trapped in the 1.2650-1.2750 range. As long as the pair is in this band, play the range, but go with the breaking side for a minimum 100 points move. On the downside, if the 1.2650 gives way, preferably on a NY closing basis, then short the euro for min target of 1.2555. If the latter breaks, then the next chart objective will be the July ’06 low of 1.2455. On the other hand, if the 1.2750 breaks, go long euro for a min move to 1.2800, then 1.2855 with more resistance at 1,.2930 to 1.2980 seen capping the upside. The Eurozone CPI data and US CPI data on Friday are likely to have a major impact on the market, so trade carefully, since the FX market is now totally dependent on inflation data, which will set the direction for the ECB and the Fed in deciding the next move on interest rates.
USD/JPY: Our strategy of shorting the yen at the lows of last week eventually paid off and we view the break above 117.50 as a good sign that we shall witness more yen weakness. But we still need to see a clear break above 117.90 to confirm the move to 118.90, then 119.20 where we intend to take profit on our short yen positions, hopefully before the G7 summit over the weekend. We also see the euro approaching the all-time high of 150.00 against the yen, while we also view sterling gaining ground against the yen on the cross, not excluding a test of 223.00 again where we shall trim/exit out of our longs.
USD/CHF: The highlight of the week is expected to be the Thursday decision by the SNB where a 0.25% rate hike is expected to 1.75%. If the hike is only 0.25%, then the event will be ignored, but if the SNB goes for a 50 basis point hike, then it will hit all those who use the CHF as a funding currency. We will stick for a 25bps move and view dips to 1.2380 as good opportunity to build long USD positions, with stops below 1.2330 to max. 1.2310 to protect from a major decline to 1.2220. On the upside, the 1.2495 to 1.2530-50 heavy resistance area needs to give way to open the potential for the USD to make an assault on 1.2720/80 subject to a clear break above 1.2590. On the crosses, we expect the euro to trade higher once the 1.5830 level is given, while we are also bullish on GBP/CHF cross, expecting a rally from current levels for min. target of 2.35.
GBP/USD: The shake on sterling went even more than what we thought would happen and the fact that GBP/USD stopped at 1.8600 and then staged a rebound to 1.8680 did not give us the opportunity to pick up more sterling against the USD, eventhough we picked some on the crosses against the yen and CHF. Cable needs to break above 1.8730, then 1.8800 to rally towards its previous highs of 1.9050, then 1.9140. Else, a break below 1.8600 (Monday low) should open the way for more weakness to 1.8580/1.8530.
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