Daily FX Summary: October 27
Courtesy of Talking Forex
EUR/USD…sovereign crisis where art thou
The assault on the EUR by the Bears continued on Wednesday, which saw the pair end the session with almost 100pip losses. The sell off was prompted not only by a stronger USD but also on the back of renewed concerns over the peripheral Eurozone. Firstly, Greece foresees a revision to 15% in its 2009 budget deficit, while main political parties in Portugal failed to agree on the 2011 austerity budget which is likely to reignite speculation that the country may be forced to activate a Greek-style aid mechanism. As such, the selling pressure may persist in the near term and the pair may break below the key 1.3622 level which will open the door towards the 50% Fibonacci retracement level at 1.3511. Worth noting that there is an intraday option expiry at 1.3800 which is due to expire on Thursday at the 10am NY cut (1500BST).
GBP/USD...the great pretender
Wednesday’s sell off by the pair was in part driven by a stronger greenback but also on touted profit taking following stellar gains post the release of better than expected GDP data on Tuesday. This then suggests that despite the fact that the economy did not slowdown as badly as feared, markets continue to price-in a resumption of the asset purchase program by the BoE. As a result, the pair fell below the 21DMA at 1.5834 and broke the key support at 1.5770 before consolidating just above the 5DMA at 1.5743. Across the pond, expectation regarding QE by the Fed shifted from the so-called “shock-and-awe” to a more measured approach, which has strengthened the greenback in recent sessions. In turn, it is this renewed USD strength and expectation that the BoE will devalue the currency via its own QE which leads to believe that risks for the pair are tilted to the downside. In terms of technical levels, major support is seen at the 50.0% Fibonacci retracement level at 1.5554, which is then followed by the 200DMA at 1.5332.
USD/JPY…how low can you go?
Renewed USD strength meant that the pair was able to post further gains on Wednesday, albeit very modest ones. The focus now will turn to the BoJ rate decision which is due to take place on Thursday where it is expected that the central bank will cut its growth forecasts, reaffirm the pledge for low rates and indicate that core consumer price growth is expected to fall short of desirable levels. As such, speculation will likely mount as to when and not if the BoJ will finally act and aggressively weaken the JPY in order to spur the stagnating economy. Most recently Japanese finance minister Noda said that the BoJ/MoF will take bold action if necessary to stem the JPY's appreciation, but it remains unclear what level will prompt such an action.