Forex - RBNZ Dovish, SNB Still To Come

Forex News and Events: A bit like the football team AC Milan – star performer in years gone by – NZDUSD took a good old beating last night. Although the RBNZ’s decision to keep rates on hold at 2.5% was widely expected, the statement and subsequent commentary was altogether more dovish, and extinguished at least some of the prior enthusiasm for NZD this year. The statement repeated comments that the central bank would look at introducing hikes in mid 2010, but said higher funding costs would reduce the extent of further rate rises. Governor Bollard was also on the wires saying that he saw the future normal level of the cash rate as not conducive to the carry trades; which will no doubt dampen expectations in the rest of the year.   The other central bank meeting due this week is the SNB (decision due 13:00 GMT), but in our view, this will be far less interesting – going with last night’s football analogy it’s more of a Burnley vs. Stoke fixture. Polls show analysts are in unanimous agreement that the SNB will maintain their 3 month labor target at 0.25% this month, despite encouraging readings in Q4 GDP (+0.7% QoQ) and outstanding retail sales figures this month (4.4% YoY). Most attention will instead focus on whether the SNB will discuss their stance on further FX intervention in EURCHF; and whether they mention any sort of preferred target for the pair. In the past, members have kept away from being too specific about their intervention tactics so we concede there is only a slim chance that more information is forthcoming this time around; nevertheless, EURCHF has spent nearly a month locked in an acutely tight range around 1.4620 levels, and at some point the deadlock between CHF bulls and the SNB will have to come to a head – it’s just doubtful that point will be today’s meeting.

Today's Key Issues (time in GMT): 13:00 CHF SNB interest rate announcement, % Q1 exp: 0.25 prev: 0.25 13:30 USD Initial jobless claims, thous 6-Mar exp: 460 prev: 469 13:30 USD Continuing claims, thous 27-Feb exp: 4500 prev: 4500

The Risk Today: EurUsd There has been a tangible drop in the volatility within the 1.3425-1.735 trading range in the last week; with each of the last three rallies falling slightly short of the previous one, and 1.3530 repeatedly taking on the role of intra-range support. However there could be a change coming, and soon. The major downtrend channel that has been in play since December edges down to 1.3800 today (also coinciding with 50% fibonacci retracement of 1.2457-1.5145), and is due to collide with our long-held trading range early next week – but it may not even take that long for the decisive breakout to occur. Friday’s US retail sales could be a just the sort of catalyst needed to kick-start a new direction for EURUSD, but critically we still need to see a break out through either the 1.3425 floor (which would point us towards targets near 1.3100 downtrend channel support), or a break above 1.3735 – and ideally 1.3800 – to be able to call a near-term bottom in EURUSD. GbpUsd What a dreadful miss in UK industrial production yesterday – but interestingly, no new lows in GBPUSD…. Despite the shocking data and subsequent GBPUSD sell-off to 1.4873, the bears ran out of steam well before the 1.4783 lows from 1 March, and a spate of short covering yesterday afternoon has now ramped the pair back within touching distance of the magical 1.5000 level. Of course, 1.5000 is not only significant for its psychological importance, but also the fact that today it also represents the upper bound of the 2 month downtrend channel. What happens at this juncture will be highly significant for the medium term direction of GBPUSD; but what may be surprising is that despite our medium term preference for GBPUSD to go higher, we actually like this scenario as an opportunity for a short-term GBPUSD sell, looking to exploit supply around 1.5000. Given the proximity of the trendline to current levels, we set a stop around 1.5040 and look for a move back toward 1.4900. Obviously any break of the downtrend would stack the odds in favour of a bullish correction, but given the one false break already back on 8 March, it might be more prudent to watch the break out, and attempt to get long on the subsequent re-test of the trend line at better levels. UsdJpy The uptick in risk appetite over the past few days (or is that exhaustion of risk aversion?) finally propelled USDJPY through its downtrend vibration channel resistance at 90.40 yesterday, and even punctured the 8 March highs around 90.70. Thus far, the re-test of that line today around 90.25 has not resulted in a collapse back into the channel, so for a very low risk punt we like going long around prevailing 90.40 levels, setting a stop just back inside the channel at 90.15 (coinciding with the 100-day moving average), and then aiming for a re-visit of 91.00 and 91.84 (200-day moving average) in extension. At the moment we have to admit that price action is pretty sticky given the 50-day moving average at 90.49 and numerous prior price action around this zone, but with such favourable risk-reward and rumoured stops building above 91.00, we definitely stick to tight stops and long bias until we see a break back below 90.00. UsdChf Much like EURUSD, USDCHF has begun trading inside a range within a range – in this case equating to the 1.0680-1.0810 band inside the larger 1.0650-1.0900. Very little new levels to watch on this one until we get a fresh move out of the range; but as previously discussed, the range lows at 1.0650 must hold for the bulls to launch another assault on the resistance levels above at 1.0800, 1.0830 and 1.0900.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.3850 1.5615 92.15 1.0980 1.3800 1.5350 91.84 1.0900 1.3735 1.5278 90.70 1.0810 1.3660 1.5000 90.50 1.0700 1.3530 1.4857 90.25 1.0680 1.3425 1.4780 89.50 1.0650 1.3300 1.4700 89.00 1.0520 S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot