Dollar recovery unimpressive so far Dollar recovered mildly against European currencies yesterday on strong TIC data but the recovery is hardly impressive so far. Meanwhile, USD/JPY continues to edge lower today in Asia as unwinding of carry trades continues.
The BoJ voted 7-2 again to keep monetary policy unchanged. Current account target (free reserves) will remain at Y30-35 trln and that the BoJ will provide more funds to the system in emergencies. The policy was set to focus on providing banks with plentiful reserves to encourage lending and overcome more than seven years of deflation, a policy known as "quantitative easing." It set three conditions to be met before it ends the policy: core consumer prices stop falling at least for a few months; policy makers are sure they won't resume sliding; and the bank is confident about the overall strength of the economy.
Later today, the German Ifo business confidence is expected to be upbeat after the strong ZEW release earlier in the week and consensus expectation is for a rise to 98.2 in December from the previous 97.8. The U.S. current account deficit is expected to have widened to a record $205b in the Q3, driven by surging oil imports after the Gulf Coast hurricanes disrupted production. EUR/USD EUR/USD dipped to 1.1936 on broad based dollar recovery and bearish divergence condition. As 4 hours MACD is now deep below signal line, consolidation/retreat should continue as long as minor resistance of 1.2015 holds. Further decline could bring EUR/USD for testing lower channel support (now at 1.1924) and probably further towards cluster support of 1.1904 (with 38.2% retracement of 1.1659 to 1.2059 at 1.1906).
Above 1.2015 will suggest the 'corrective' decline from 1.2059 has completed and chances favor further rebound to retest falling trend line resistance (now at 1.2049).
Also, as discussed before, the rebound from 1.1659 is treated as a correction to the decline from 1.2587. A break below 1.1904 cluster support and sustained trading below the lower channel line will indicate the rebound has already finished and risk further fall towards 1.1818 support.
Meanwhile, a strong break of 1.2059 resistance and sustained trading above the trend line (now at 1.2049) will suggest underlying strength in EUR/USD could be stronger than a mere correction and could lead to further rally towards 50% retracement of 1.2587 to 1.1641 at 1.2114 or even further to 1.2171 resistance.
GBP/USD Cable's retreat from 1.7810 has pushed it to as low as 1.7612 before turning into mild consolidation. At this point, as 4 hours MACD remains below signal line, as long as minor resistance of 1.7698 holds, the current decline is expected to continue towards 4 hours 55 EMA (now at 1.7563).
Meanwhile, as we're treating the current rally from 1.7047 as correction to the fall from 1.8498, a firm break below the 4 hours 55 EMA and sustained trading below the lower channel line (now at 1.7659) will strongly suggest the rebound has completed at 1.7810 already and cable should then be pushed to 1.7451 resistance turned support first.
However, 1.7698 minor resistance will indicate the fall from 1.7810 has possibly completed and cable bias will be turned sideway for retest of 1.7810 resistance first. A break above 1.7810 again will indicate the rebound is still in progress for resistance zone of 1.7902 resistance (with 61.8% retracement of 1.8498 to 1.7047 at 1.7944 and longer term falling trend line (from 1.9219 to 1.8498, now at 1.7956). But upside should be limited there or the underlying strength of cable is making is stronger than a mere correction.
USD/CHF USD/CHF's recovered to as high as 1.2924 after breaking above 1.2878 resistance. At this point, since 4 hours MACD remains above signal line, as long as minor support of 1.2867 holds, the current rise from 1.2774 is expected to continue towards cluster resistance at 1.2964 (50% retracement of 1.3157 to 1.2774 at 1.2966 and 38.2% retracement of 1.3283 to 1.2774 at 1.2968).
As the current fall from 1.3283 is being treated as a correction to whole rally from 1.2239. Firm break above 1.2964 will indicate the corrective fall has completed and risk much stronger rally towards 1.3067 or even further to 1.3157 resistance.
Meanwhile, below 1.2867 will signal the rise from 1.2774 has possibly finished and bias will be turned sideway for retest of 1.2793 support first. Below 1.2793 support again will indicate the decline from 1.3157 has resumed for 1.2695 support and possibly the longer term rising trend line (from 1.1481 to 1.2239, now at 1.2693). But downside should be contained there an bring reversal or the weakness in USD/CHF is much more than a mere correction.
USD/JPY Even though deeply oversold, USD/JPY still managed to fall further to 115.62 before turning sideway. As hourly MACD and RSI are both displaying bullish convergence, the current fall from 121.04 may complete soon and turned short term bias to consolidation. Touching of 23.6% retracement of 121.04 to 115.62 at 116.90 will indicate consolidation has started with risk of further recovery towards cluster resistance of 117.68 (38.2% retracement of 121.04 to 115.62 at 117.69). However, USD/JPY could still stage another fall as long as it stays clear of 116.90.
From a longer term angle, the question remains how important is the top at 121.38. It's now still not clear which path USD/JPY will take but as long as any recovery is bounded below 118.31 support turned resistance, we'll assume an aggressively bearish scenario of further decline towards next key cluster support of 113.74 (61.8% retracement of 108.75 to 121.38 at 113.57 and 38.2% retracement of 101.65 to 121.38 at 113.84) first.
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