John J Hardy
Head of FX Strategy / Saxo Bank
We had a risk off impulse overnight on an ugly session for Chinese equities on news that the authorities there are clamping down on brokerage houses. But with US markets closed yesterday, the fallout was somewhat limited. Still, the offered tone in AUD and NZD, for example, underlines the risk that their run of strength may be ending.
It is a terrible mind game for EURUSD traders ahead of major event risks like those that we are facing down next week as we have to wonder how much is priced in and where is the bar for surprise from both the European Central Bank next Thursday and from US Federal Reserve speakers and the US jobs report next Friday.
There is both plenty room for a squeeze back to bigger resistance areas at 1.0800 and even 1.1000 here while we also have room to the sub-1.0500 lows before we hit any major support levels. But bears may want to at least have one leg in the water here on the fear of missing out.
USD: The Fed will have to be careful not to oversell its "gradual pace" language next week as we await the next batch of jobs data on Friday. Today, watching the USDJPY support at 122.25, the GBPUSD support at 1.5025 and whether EURUSD can continue to grind lower within the descending channel ahead of next week.
EUR: Everyone knows it is coming and many are expecting the ECB's Mario Draghi and company to deliver something big next Thursday at their board meeting. But let's recall that EURUSD is merely back to where it was around the initial announcement of this quantitative easing programme back in March - can we see a quick run to parity in EURUSD if Draghi delivers. No position for EURUSD bears may be a greater risk than trying to wait and see next week.
GBP: Sterling on its back foot against the USD, where we're watching the recent lows for the cycle just above 1.500 as a hurdle that should be easily cleared if the greenback stays strong here as UK/US interest rate spreads continue to favour the greenback. Meanwhile, EURGBP needs to sell off again back below 0.7000 or we risk another squeeze.
CHF: EURCHF remains solidly in the range despite the onrushing ECB meeting next week,as perhaps the market is anticipating that the SNB will respond sufficiently at its December 10 meeting to keep the risk of franc appreciation contained. USDCHF also at critical levels here as we ponder its potential for a significant move in the New Year.