Traders focus on ‘residual’ Fed risks

EUR USD (1.2820)
Yesterday’s steady drift lower confirmed our suspicion that last week’s sideways-trading mentality was not compromised by the post-NFP rally. Range-bets were not fully unwound during the push higher and, as Monday’s session drew on, fresh sellers were possibly encouraged by the absence of any upside follow-through. The logic for the bears was simple: a Fed pause is all but priced in, but there is still the residual risk of a hike. And, of course, there is also the likelihood that the FOMC continues to talk tough on inflation even if there is no hike. The BP oilfield closure and the corresponding leap in the crude-price to a record high certainly did nothing to dispel inflation fears.

The current target remains 1.2990. Despite the downward correction, the euro has held above the best nearby demand points, now at 1.2790 and at 1.2750. The former still serves as the risk-limit to the current bullish scenario. A violation of the second would leave the single-currency looking vulnerable once again. Given the paucity of good supports thereafter, the risk would even be down to 1.2485.

USD JPY (115.20)
Dollar weakness similarlyran out of steam against the yen on Monday. A renewed rally beyond $115 revived a discussion about the prospect of a pick-up in US Treasury accumulation by Japanese investors once the Fed tightening cycle comes to an end. This was an opinion that was already floated in the middle of last week, but seemed to have been forgotten during the post-payroll sell-off. We continue to hold a neutral opinion on the market. In case of a move higher, the level 115.55 still marks the first important hurdle. Following a break there we would anticipate a buying scramble that lifts the price to 118.30. In the meantime, one should note supports at 114.50 and at 113.35/50.

EUR JPY (147.70)
We continue to expect the euro to climb to a marginally higher high (148.35/50) within the current half-hearted trend resumption. An upward acceleration to 149.80 would await a move beyond this hurdle. To the downside, the first support remains at 147.00. The bearish trigger is now at a distant 145.90.

GBP USD (1.9060)
Yesterday’s softer-thanexpected economic data from the UK did nothing to diminish the frothy interest rate expectations. Despite across-the-board dollar strength, the Pound managed to hold on to almost all the gains from Friday. The near-term bullish potential has been stretched to 1.9340. This will remain the case as long as Cable holds above 1.8905. The critical downside point remains at 1.8865/70.

AUD USD (0.7615)
The A$ reinforced its recent narrow range after it was again rejected ahead of our 0.7680 resistance. This level remains the trigger point for another run at 0.7810. To the downside, a break of 0.7575 must be seen before any lasting downward correction would unfold.