Dollar stuck in tight ranges

The euro started the week below the strong resistance level of 1.2760, which is now likely to act as the near term top, pressing the euro to correct lower towards first decent support level of 1.2655. So we suggest neutral positions in the 1.2655-1.2760 range, but will certainly go with the breaking side. On the downside, a break of 1.2655 will yield a minimum move to 1.2580 with more support seen at 1.2550, which should hold the downside. Profit taking is advised on new shorts on dip to 1.2550-80, but new shorts also advised if 1.2550 gives on a closing NY basis for new target of 1.2455, which should have been seen last week, but was missed because of the weak GDP figures. Perhaps the nonfarm payrolls due on Friday will see to that. On the upside, a clear break (at least 2-3 hours and preferably on a NY closing basis) above 1.2760 and more importantly 1.2800 is likely to yield a minimum move to 1.2860 where profit taking on the new longs are advised. A close above 1.2880 in NY should trigger a move to 1.2910, the major resistance line for this week and then 1.2980, the all-time high since June ’06.

 

USD/JPY: Japanese data Tuesday disappointed, yet again. The unemployment rate ticked up to 4.2% from 4.1% while household spending for September decelerated to -6.0% y/y in September from -4.3% (markets were expecting a -2.1% reading). USD/JPY moves higher however were limited as exporters were keen to sell ahead of the BoJ monthly report, which seems to have gone slightly in their favour. The BoJ said that it would gradually adjust rates based on economic and price conditions but there was a general sense of optimism. While it is hard to decipher whether the BoJ will hike or not in December, the report does sound positive and could lead to speculation that the BoJ will move again before the year is over. This should keep the pressure for USD/JPY on the downside with a break of 117.40 crucial, otherwise the pressure will increase for a test of 118.10-30, beyond which it opens for another test of 119.10/40.

 

USD/CHF: The dollar is staging a modest rebound and approaching heavy resistance between 1.2540 and 1.2570, with the latter also being the 200-day moving average level. In the event that the USD manages to gain above 1.2570 on a closing basis and more importantly breaks through 1.2605, then the coast should be clear for a major rally to 1.2705/30, the next major resistance line, where we advise profit taking on USD-longs.  On the other hand, if the 1.2540/70 resistance area is not cleared soon, then brace for USD weakness to 1.2400, with a break below 1.2385-1.2360 opening the way for the next leg of the move to 1.2220 area.

 

GBP/USD: Cable broke above the 1.9025 chart level after the release of supportive UK data, but failed to clear near term resistance at 1.9040 on expectations of a minimum 0.25% increase in rates next week. Although the near term sentiment on the pound is extremely bullish, but do note that it still needs to clear heavy resistance between 1.9040-1.9090 to climb to 1.9140, the high since August 2006 and only if it manages to break that, then it will have a chance of testing the all-time high of 1.9270. On the downside, and assuming that 1.9040 is the top, we see further correction and accelerated downmove after a break of 1.8955 targeting 1.8885, then 1.8620.

 

Disclaimer: The recommendations on this page are for indication purposes only and the Financial Mirror does not take any responsibility for investment action taken on the above. Always consult a professional before investing.