Fukui adds fuel to popular yen optimism

EURUSD (1.2730)
The “50-50” comment by the Fed President Poole, in reference to this month’s FOMC meeting was the only news that caused a flutter in otherwise dull trading yesterday. This probability for another rate hike was noticeably more than the market had been pricing in. However, the remark was quickly discounted: against a backdrop of falling Treasury yields, analysts are slowly coming round to the prospect of US rate cuts next year. And, in any case, Poole is not a voting member.

Traders were not obliged to act anyway. The short-term crowd had already squared up after Friday’s US GDP numbers. Yesterday’s EUR-Sentiment Survey also revealed the increasing neutrality of medium-term protagonists. They spent last week selling – with profits - some of the euros that they accumulated during the previous week. Thus, the perceived price range 1.2480 - 1.2850 is more salient for them than any ‘news’. We expect further medium-term offers between here and the upper border. Therefore any break beyond there should meet little additional supply. We would target 1.2990 in this case. To the downside, a strategy within the range is not particularly appealing. However, following a retreat to the 1.2610/30 range, we would make a bullish attempt using a very tight risk limit.

USD JPY (114.65)
The risk remains for further weakness to 113.35, but we are not keen to propose any bearish strategy. The market clearly favours yen strength. The talk is about a strong Japanese economy, thanks to yesterday’s IP numbers and about seasonal repatriation flows. This morning, the BOJ’s Fukui tried to keep warm the idea of further rate hikes this year. Thus, it is a falling yen that would cause the greatest surprise at the moment. Upside hurdles for the dollar are at 115.30 and at 116.20. Beyond the latter we would reckon with a two percent rally.

EUR JPY (145.95)
The cross flirted with the critical support at 145.70/75 yesterday but rebounded overnight. This level remains the trigger point for a more severe setback to 143.10/20. Overhead, we still note hurdles at 146.90 (subsequent limit in case of a downside break) and at 148.40.

GBP USD (1.8645)
The upside remains open for gains to 1.8775 and then to 1.8965. The riskreward profile for a bullish strategy, however, is unfavourable as the first support is all the way down at 1.8530 and the best demand only at 1.8465. A dip to the former would provide the opportunity to enter, with a risk limit set at the latter.

AUD USD (0.7625)
Yesterday the A$ retreated from our former 0.7675 target level, which remains the best resistance. So far the overnight correction has tested the first support at 0.7625 and additional demand stands at 0.7570/75. Until the latter is violated, one should not reckon with any durable setback.