Key Technical Levels Ahead Of FOMC
T-minus 30 minutes and counting. Here are the key technical levels in advance of the most critical FOMC decision in history, from Goldman's John Noyce, focusing on USTs, the EURUSD, USDCHF, JPY crosses, and Gold.
U.S. 10-year yields – Can the market close back below 2.61-2.57%? The most important pivot within this region being the 55-dma which stands at 2.57%. If the market can close back below this area it would make the bounce in yields from the 8th October low look similar to that from the 25th August low to the 13th September high - implying that fixed income has stabilised and that yields can begin to tick lower again. If we close significantly above, particularly above 2.64% (Tuesday’s high) to give a bullish key day in yields terms (price bearish) the concerns about how far away the 200-dma stands (3.17%) would come back into focus. Basically it looks like an extremely important close.
EURUSD – Bias is to buy dips in line with the completed triangle continuation pattern. This gives an upside target of 1.4423.
USDCHF – If there is disappointment, this now looks one of the most stretched USD/G10 pairs. Although the market has bounced over the last few weeks, it has so far held below the 55-dma on a close basis, enabling the market to make 98 consecutive daily closes below the 55-dma. This is the most since 1990. If there was a disappointing outcome today and the USD generally bounces, this cross looks particularly susceptible to an upside correction taking into account how stretched it is by historic standards.
Cross/JPY – In general the JPY is starting to look weak in the crosses (bullish-Cross/JPY). USDJPY levels are difficult, but there are a few notable pivots to watch on the Cross/JPY markets. EURJPY has already broken the downtrend across the highs of the corrective/overlapping down move it made during October. The big pivot looks to now be the downtrend from the August ’08 highs at 114.71. Above there and the story for a 120 move begins to build. The other one to watch is CADJPY. This cross more than any other, bar maybe MXNJPY, seems a pure play on the “outlook for the U.S.”. It’s currently sat just below the converged downtrend from the 30th April highs and the 55-dma; 80.79-80.82. A close above would start to increase confidence a base is in place and leave the next real level as the 17th September highs at 84.11. JPYKRW is also another one we’re watching closely as it appears to be forming an H&S top with a target of 12.5357 and fits with what we believe is a broadly constructive backdrop for KRW.
Gold – The drop over the last few hours has so far held good support centred on 1,331. The uptrend from the 28th July low and the 200-period moving average on the 4-hour chart being converged there. The same levels acted as support during last Wednesday’s correction. We would get concerned if the market can’t again hold this support on a close basis, as in Elliott terms you can argue that the drop from the 14th October high to the 22nd October low divided into a 5-wave sequence, i.e. an impulsive decline (potential trend turn) rather that a corrective 3-wave/ABC move.