‘Code-word’ analysis belongs to Greenspan era

EUR USD (1.2795)
Even before the ECB raised rates, a surprise hike by the BOE ought to have provoked some soulsearching among central-bank watchers. But the immediate comments following the Trichet press conference suggests that little reflection took place. Commentators declared that his use of the expression ‘closely monitoring’ usually means that rates will rise again within two months, so the next hike must be pencilled in for October. But the ECB chief has repeated said that decisions are not taken in advance and that the Bank eschews the use of code-words. What’s more, there have only been four rate moves in his presidency: what is usual? Watchers seem hell bent squeezing the ECB into a Fed-based model of central bank communication that dates back to the Greenspan-era. The new Fed Chairman, as well as Mr Trichet, want the market to do its own analysis and not rely on the central bank to tell it where and when rates are going.

Good selling continued ahead of the upper border (1.2850) of the perceived sideways range yesterday. These sales almost certainly included some short-selling among the continued liquidation of longs. We would therefore become bullish on a break for an objective at 1.2990 and beyond (1.3310). To the downside, shortsellers will provide demand in the 1.2685/00 zone, where we would also try a bullish strategy with a risk limit set immediately below.

USD JPY (115.10)
The dollar’s stagnation since the start of the month has no doubt brought some disappointment for those who thought that it would weaken further for seasonal, yield, or other reasons. Yesterday’s modest rebound probably reflects some short-covering. But we do not believe
that a scramble will take place until 115.70 is overtaken. In this case, we would target gains to
118.50. In the meantime, there is still a risk down to 113.35. Any early dip below 114.55 would be indicative of another round of weakness.

EUR JPY (146.40)
The euro just tested our first overhead point yesterday and then slipped back again. A break of this 147.50 level (weaker) could now be achieved, but we would only anticipate another 100-pips to the upside (148.50) within this trend resumption. To the downside, the first support is at 146.70 and 145.75 continues to mark the bearish trigger.

GBP USD (1.8875)
In the aftermath of the BOE rate hike, the Pound was able to capture the lion’s share of the upside potential we discussed yesterday; it stopped just 50-pips short of our 1.8965 level. Beyond there, one would have to reckon with marginally new highs at 1.9030. To remain positive, 1.8720/30 is the downside level that must not now be undercut.

AUD USD (0.7615)
Yesterday’s early retreat violated our downside risk-limit (apologies) but we do not consider the AUD to be vulnerable. Although bullish dynamics have been lost, good (but critical) support remains at 0.7520/30 and this would merit a new bullish strategy with a very tight risk-limit. Supply is now sighted at 0.7650 and at 0.7680. Above the latter, another run at 0.7810 would follow.