Forex - Markets Await Eurozone Q3 GDP After A Week Of Consolidation

Forex News and Events: It has been a week of consolidation and reflection for FX markets as a minimalist data calendar has allowed the risk-asset rally to catch its breath from the drama of the week prior. On balance, the economic releases of the week have provided very few new developments likely to change the market’s fundamental outlook; the one exception possibly being Mervyn King’s comments after the BoE inflation report that left the door open for more QE. Nevertheless GBPUSD, like EURUSD, is trading at virtually the same levels today as at the start of the week, give or take a few technically driven USD corrections along the way. It is unsurprising that in the absence of news, the market has been left trading technical levels and chart patterns, while attempting to conjure up a story from the most unremarkable of global headlines. Current chatter is focused on the likelihood of Chinese Yuan appreciation after finance ministers from APEC (Asia Pacific Economic Co-operation) countries this week endorsed “market oriented exchange rates that reflect economic fundamentals”. Yet for all the ensuing praise and support from US officials, the continued aversion to creating a serious confrontation with China over its USD peg means that the rhetoric reflects very little material change in circumstances. Indeed, even as the Treasury’s Timothy Geithner was lauding this currency stance, China’s Zhu was also on the wires claiming that the stability of the currency was a contributing factor to China’s recovery.   It seems the only potentially market-moving event left for this week will be today’s advance Q3 GDP reading from the Eurozone where markets are looking for a 0.5% expansion QoQ after the -0.2% contraction in Q2. A better than expected number should elicit a quick return to 1.5000 levels for EURUSD, but we are cautious that the mood of the last few days has hinted at some winding down of positions into year end, and if the reading surprises significantly to the downside (0.1% QoQ or lower) then a sharper correction down to 1.4600 levels would be in order.

Today's Key Issues (time in GMT): 10:00 EUR GDP, % q/q Q3 exp: 0.5 prev: -0.2 13:30 USD Trade balance, bn $ Sep exp: -31.8 prev: -30.7 13:30 USD Import prices, % m/m (y/y) Oct exp: 1.0 (-5.6) prev: 0.1 (-12.0)

The Risk Today: EurUsd We said yesterday that a retest of 1.4953 would be a decent entry point for the head and shoulders short formation and after hitting the level the pair spent all day going to the text book target of 1.4860. In early Asian trading the pair went slightly lower to test the 12 month uptrend at 1.4830 where it received solid bids on two occasions, trading higher up to the resistance at 1.4905. Above there we have the 3 day downtrend and heavier resistance at 1.4953 and it may be a case that the medium term bulls will wait for clearance of the short term downtrend before committing to larger positions.Whichever trend gets tested the most will likely break in good time and it is worth noting already that the 12 month uptrend is getting tested just as much as the major resistance for the bulls in the 1.5050 region. GbpUsd The bounce in GBP USD came a little higher than the expected 1.6484 support, attracting bids in the 1.6510 region as shorts covered at the lower end of the short term downtrend. The upper ends of that downtrend are being visited at time of writing at 1.6685 where intraday shorts may well be looking to sell the pair for a quick buck. Clearance of 1.6750 would take us back to a situation where the 2 year downtrend is under pressure and one would have to switch from looking for intraday shorts to medium term longs. Time will tell. UsdJpy The inverse head and shoulders formation on USD JPY played out a little earlier than anticipated yesterday taking the pair straight to the text book target of 90.60, but now sits back below its downtrend channel heading for the support at 89.71. Failure to hold here will be looking for support and the short term uptrend 89.39. UsdChf Just as with EUR USD, the pair broke the neckline shortly after yesterday’s report and spent the day heading to its target of 1.0183 where it has met solid resistance. Longs may be looking today for 1.0132 or 1.0110 as an entry point, while 1.0037 seems to be as solid as a rock in terms of support. I think to break 1.0037 we would need to see other risky assets such as equities go raging into new highs which is probably the largest debate on the street right now. Clearance of 1.0205 would be required to attract any intraday momentum longs and give the bulls a little more excitement than as otherwise been available to them of late.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.5100 1.7400 93.50 1.0290 1.5063 1.7041 92.50 1.0200 1.5046 1.6900 90.75 1.0170 1.4885 1.6675 89.80 1.0145 1.4910 1.6400 89.20 1.0037 1.4810 1.6260 88.85 1.0000 1.4626 1.6200 88.00 0.9890 S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot