The euro is seen toppish at near term resistance of 1.2770 against the dollar, which may hold the currency down. In the event of a break however, the euro will manage to edge higher.
Here is our FX commentary:
EUR/USD: The dollar fell across the board after September manufacturing ISM staged a larger-than-expected decline, to 52.9 from a previous 54.5 (vs. expectations for a drop to only 53.7). IMM positioning data shows marginal additions to EUR longs, which keeps positioning top-heavy and may not allow for massive gains when as expected, on Thursday the ECB hikes euro rates by 25 bps. A break above near term res. at 1.2770 should push the euro to 1.2825/70 area, but we intend to sell there for a return back to 1.2720 pivot point, and on the assumption that the big range of 1.2600-1.2900 will hold. Stops suggested on fresh euro shorts established at 1.2825/70 at 1.2920, since a NY break above 1.2930 will open the way for a min. move to 1.2990, the all-time high prevailing since May 06. In the event that the 1.2820/70 range holds on the upside, brace for a return back to 1.2720 pivot area, and not excluding a break lower to 1.2655, after which the way should be open towards heavy support area at 1.2620. Only a clear and closing break below 1.2580 will trigger a move to 1.2555 to 1.2515 where fresh euro longs may be attempted.
USD/CHF: For the USD to come under more sustained pressure, upcoming US data need to signal this weakness. The light data calendar means that the next data focus will be the employment report out on Friday. During the week, Fed speak will be closely eyed. Break of 1.2410 is needed to accelerate a move to 1.2320/1.2290 heavy support area, which in our opinion is the bottom of the near term range. In the event that the 1.2320/1.2290 range is seen and holds, then brace for a counter-rally to 1.2540/80, above which should pave the way for a move on 1.2640 heavy resistance.
USD/JPY: Even with rather strong comments from Japanese government officials, the JPY has failed to react. Economics Minister Ota said that the Tankan survey backs up the view of strong economic sentiment and that the BoJ would make appropriate decision on rates based on the Tankan. We expect that the JPY has seen the worst of its levels for the week at 118.40 and from here onwards will rally higher to 116.80 once it manages to make a convincing break of 117.20/40. Once the 116.80 is given, then brace for an accelerated move to 116.20, and not excluding a dip to 115.50 area. We have decided to go against the trend on the crosses and are long yen against euro and sterling.
GBP/USD: In the UK, data has been relatively positive. While the MPC is not expected to hike rates on Thursday most analysts see it moving rates in November. Having said that, we believe that the near term res. at 1.8920/30 will not break that easy, which is why we recommend shorts there for a return back to 1.8650 area. Stops on break of 1.8960 to protect against a move to 1.9050/90. If the 1.8920/30 is seen and does not break, then brace for a major downmove to 1.8680/60, beyond which it is open for a move to 1.8600/35, the support base holding since July 06.
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.
