EUR/USD may push higher to 1.3100 this week before large consolidation sets in after Friday's US payroll shocker.

The payrolls dragon was summarily snuffed on Friday as new theme of central bank acceptance of USD decline takes over.

November 8, 2004

Economic Data Today (all times GMT)

• 06:45 – Switzerland Unemployment Rate (Oct)
• 09:30 – UK PPI Input/Output
• 09:30 – UK ODPM House Prices (Sep)
• 10:45 – ECB’s Issing to Speak
• 13:15 – Canada Housing Starts (Oct)
  

Highlighted Economic Data this week:

• TUE: Germany/EU ZEW Survey, Switzerland SNB’s Hildebrand to Speak
• WED: Japan Trade Balance, Japan Consumer Confidence, Norway CPI, UK BOE Inflation Report, US Trade Balance, US Weekly Crude Inventories, FOMC Rate Decision
• THU: Japan CGPI, Australia Employment Data, Germany GDP, Switzerland Retail Sales, ECBs Trichet to Speak
• FRI: New Zealand Retail Sales, Japan Industrial Production, Japan GDP, US Retail Sales, US University of Michigan Confidence

Market Commentary

The market showed its hand in a dramatic fashion on Friday, as knee-jerk USD strengthening on the massively stronger than expected US payrolls data was quickly overwhelmed by a new wave of USD selling. Clearly, the new background theme of central banks' unwillingness to stem the USD weakening trumps even the most important of monthly US economic numbers. Friday's action underlines the USD weakness for the medium/long term and improves the chances for our 1.3850 target for EUR/USD early next year.

Meanwhile, the next big events are the FOMC meeting on Wednesday and the curve flattening brought about by Friday's jobs report. In general, the Fed will need to continue to hike rates perhaps more than the market currently anticipates to help prevent a USD meltdown and to fight back against inflation - which I think could begin to show signs of ticking up in the months to come as the Chinese move towards a revaluation and the effects of drastically higher oil prices begin to work their way through the pricing chain.

Watch out for Trichet on Thursday - although central banks haven't come out with verbal intervention yet, they may begin to do so soon, simply to slow the pace of the USD decline - this kind of action could make for very volatile and deep corrections within the overall trend.

Technical Comments

EUR/USD - made new all time highs since the introduction of Euro trading on Friday after traders trying to buy the USD on the strong payrolls report quickly developed a case of whiplash. After the dramatic show of strength, EUR/USD may be primed for one more push higher to 1.3100 until pre-FOMC jitters set in and we see a pullback - possibly to the 1.2830 area support. Target for Q1 next year is 1.3850 for EUR/USD.

GBP/USD - now that GBP/USD has after breaking free of the 1.8500 could follow through to just short of 1.8775 resistance early this week before a correction sequence possibly takes it back to around current levels.

USD/CHF - CHF continues to hold its strength and may follow through lower to 1.1660/80 before a correction sequence back to the 1.1910 initial resistance begins later in the week. Watch out for the Hildebrand speech tomorrow - as many are expecting a hawkish tone - but the market may be overpositioned for this, meaning that there is a risk of the opposite reaction (CHF weakening compared to EUR & GBP)

USD/JPY - USD/JPY remains heavy as it creeps lower and lower toward the 105.20 support. The current sell-off may not take it much lower than that level before a corrective sequence begins back towards 106.50 resistance. There are increasing signs that the MOF may not step in any time soon, meaning that USD/JPY may eventually fall to 100.00 and lower further out.

EUR/JPY - EUR/JPY remains well supported, but this currency pair has been miserably rangebound for some time. If the USD continues to weaken, EUR/JPY may finally push above 137.00 and could go on to make an attempt at 139.00. 136.20/136.00 is a strong support area.

AUD/USD - AUD/USD has pulled back from its highs on Friday, but remains in rally mode if it stays above the 0.7580 area support. Somewhat bearish for AUD relative to non-USD peers is the growing consensus that the RBA is through hiking rates for now. Still, AUD/USD may continue higher towards 0.7700 before encountering serious resistance.

USD/CAD - there seems to be no floor for this currency pair, but one is likely to develop soon, possibly just north of 1.1800. Looking forward, the BOC is one of the central banks considered to be most likely to maintain a hawkish tone. In corrective mode, USD/CAD may bounce back to the 1.2100 area before resuming the downtrend.

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Trichet's Verbal Intervention Knocks EUR/USD back to support, but EUR/USD may be ready to rally to just short of 1.3100

Anticipation of whether the Fed will change its statement at tomorrow's FOMC meeting the key event risk through tomorrow.

November 9, 2004

Economic Data Today (all times GMT):

• 09:30 – UK Trade Balance (Sep)
• 10:00 – Germany/EU ZEW Surveys (Nov)
• 11:00 – Switzerland SNB Governor Hildebrand to Speak
• 12:00 – Sweden Industrial /Manufacturing Production & Industrial Orders (Sep)
• 15:00 – US Wholesale Inventories (Sep)

Highlighted Economic Data this week:

• WED: Japan Trade Balance, Japan Consumer Confidence, Norway CPI, UK BOE Inflation Report, US Trade Balance, US Weekly Crude Inventories, FOMC Rate Decision
• THU: Japan CGPI, Australia Employment Data, Germany GDP, Switzerland Retail Sales, ECBs Trichet to Speak
• FRI: New Zealand Retail Sales, Japan Industrial Production, Japan GDP, US Retail Sales, US University of Michigan Confidence

Market Commentary

Trichet finally sent the markets a warning yesterday in the wake of the just-adjourned G-10 meeting with a clear _expression of disapproval of "brutal moves" in the currency markets - particularly EUR/USD, of course. This is the first real verbal intervention of any kind since the USD began breaking down through support about three weeks ago. But while the knowledge of disapproval is important for traders to recognize and creates some form of headwind for further progress higher - it doesn't really affect the fundamentals of the situation - only anticipation of real action (rate adjustments and/or actual intervention) could do that. Therefore - Trichet gave the market pause, but the market may be ready to charge higher once more. 1.2900 area in EUR/USD is key support.

We can't forget the upcoming Fed meeting - with the announcement in the early US afternoon. The Fed is sure to raise rates - but the market will focus more on whether the Fed changes its statement in any way. I don't think they will - and this would be considered bearish for the USD as many may be expecting a move to more hawkishness after the recent strongish US data.

Technical Comments

EUR/USD - faded back to the 1.2900 area support (and even briefly dipped below overnight) in the wake of Trichet's comments, but remains well-supported. The slight sell-off may be all we see for now, as EUR/USD may be primed for another rally higher - on through the 1.2985 top and to perhaps 1.3060 before finding the next resistance.

GBP/USD - got off to a false start on likely stop running yesterday as GBP/USD briefly had a look above 1.8600 before promptly getting pounded back to support just above 1.8500. That may be all the consolidation this currency pair needs, however, as GBP/USD may rev its engines and have a try higher towards the 1.8775 major resistance.

USD/CHF - made a marginal new low yesterday just below 1.1760 before bouncing higher to 1.1840 resistance. That resistance may hold as USD/CHF may probe lower still to perhaps 1.1660/80 before finding support. Watch out for SNB's Hildebrand today, as CHF could move either way on his comments.

USD/JPY - USD/JPY remains heavy as it creeps lower and lower toward the 105.20 support. The current sell-off may not take it much lower than that level before a corrective sequence begins back towards 106.50 resistance. There are increasing signs that the MOF may not step in any time soon, meaning that USD/JPY may eventually fall to 100.00 and lower further out.

EUR/JPY - EUR/JPY did find some support at the 136.20 support level. . If the USD continues to weaken, EUR/JPY may finally push above 137.00 and could go on to make an attempt at 139.00. 136.20/136.00 is a strong support area.

AUD/USD - made an ugly top by coming all the way back to the 0.7560 support area. A bit uncertain whether lower support around 0.7500 will be tested now, or whether AUD/USD is ready to charge higher again towards the 0.7700 target. The latter is the preferred case considering the outlook for the other USD currency pairs.

USD/CAD - CAD looks very strong as USD/CAD remained for the most part below Friday's lows for the balance of the day and even probed the 1.1900 area before bouncing somewhat. 1.1975 resistance may hold for now as USD/CAD may fall once more and test new areas below 1.1840.