US traders are filtering into their desks this hump day to see some broad bullish price action for their home currency. With the exception of the pound, which has been supported by a hawkish “mutiny” in the most recent BOE minutes, all major currencies are falling against the US dollar. As a few examples, USDJPY has broken out to a new 4-month high, USDCAD is pressing its highest level in 3 months, and NZDUSD just ticked down to a new 5-month trough under .8400.
Based on this morning’s price action, traders are bullish ahead of today’s FOMC minutes, which will shed some light on the internal discussions that led to the central bank’s July statement. As a recap, the bank tapered its QE program by another $10B down to just $25B and tweaked its statement to reflect a more optimistic, though still cautious, view on the labor market. Interestingly, there was one dissent from Fed Governor Plosser, a hard line hawk. If the minutes reveal that other members empathized with Plosser’s views, the USD could extend its gains, but if we learn that Plosser was a minority of one, the greenback could reverse lower on falling interest rate expectations.
Technical View: EURUSD
While the buck is hitting significant highs against most major currencies, the EURUSD is perhaps the most interesting case. Back on Monday, we highlighted a short-term symmetrical triangle pattern, suggesting that, “If we do see a breakdown, EURUSD bears may look to target the 1-year low at 1.3300 next, followed by the 38.2% Fibonacci retracement of the 2012-14 rally near 1.3250.” As fate would have it, rates broke below the triangle pattern yesterday and have now dropped to an 11-month low under the 1.3300 level, putting in a clear Bearish Marubozu Candle* along the way.
In the short term, the direction of the EURUSD will hinge heavily on fundamental data, with the Fed minutes, tomorrow’s Eurozone PMI figures, and Friday’s speeches by central banking’s royal couple (Janet Yellen and Mario Draghi) all serving as major event risks. That said, a close below 1.3300 today would leave the technical bias bearish for a possible continuation toward the aforementioned Fibonacci support level at 1.3250, if not lower. On the other hand, a recovery back above 1.3300 accompanied by relatively dovish Fed minutes may point to a more substantial recovery in the latter half of the week.
* A Marubozu candle is formed when prices open very near to one extreme of the candle and close very near the other extreme. Marubozu candles represent strong momentum in a given direction.