Daily FX Summary: October 25
Submitted by Talking Forex
Despite renewed USD weakness, the pair failed to post substantial gains and after moving above 1.4000 level yet again, edged back towards the mid-1.3900's in the closing hours of trade on Monday. Still, the pair remains in a bullish trend and there is plenty of economic data from both sides of the pond on tap on Tuesday which, given the looming Fed meeting will result in high volatility by the USD and should the data disappoint, would lead to another attempt by the pair to surpass the 1.4100 mark. In terms of technical levels, to the upside 1.4100 remains a crucial psychological level and below, resistance levels are seen at 1.4005 and 1.4050. To the downside, supports levels are seen at the 10DMA at 1.3942, followed by the 21DMA at 1.3843. There is also an intraday option expiry at 1.3800 which is due to expire on Tuesday at 1500BST NY cut.
GBP also benefited from renewed USD weakness on Monday following a research note by Goldman Sachs, which suggested that the Fed may carry out USD 2trl QE and in a worst case scenario the central bank will be forced to pump in almost USD 4trl. GBP also benefited from a somewhat lackluster appetite for EUR, with EUR/GBP trading below 0.8900. Going forward, majority of market participants expect the BoE to announce a resumption to its asset purchase program but the size will be open to debate after the release of the GDP data on Tuesday morning. The price action during the latter half of the day will likely be dominated by the USD flow, which is expected to be highly reactive to the economic data in form of housing, consumer confidence and Richmond Fed. In terms of technical levels, resistance levels are seen at the 10DMA at 1.5827, which is then followed by the 21DMA at 1.5836. To the downside, major support is seen at the 200DMA at 1.5337.
The USD story was the main driver behind yet another move lower by the pair today, which printed a fresh 15y low at 80.41 and remains on track to make a test on 80.00. The greenback is expected to weaken further and unless the Fed decided not to proceed with QE v2.0, the pair will weaken further and eventually test the historic low at 79.75. As such, it remains highly uncertain as to what level will prompt an intervention by the BoJ and some speculate that only a convincing break below the historic low will prompt such action. There is also an intraday option expiry at 81.90 and 80.00 which is due to expire on Tuesday at 1500BST NY cut.