FX Market Analysis from a Goldman Sachs IB Analyst

With oil prices sliding past that psychological $140 barrier, the Dollar has found some footing against both the Euro and the Yen. Despite the gloomy outlook and the downward momentum seen across European and Asian markets—where the Dow Jones dropped 2.5%—trading in the USA started off on a positive note. That said, things could pivot at any moment; investors are bracing for the release of some heavy-hitting US data. Given how high fuel costs have stayed and the general dip in consumer confidence, I suppose it's easy to see why traders are nervous. Even Bernanke’s recent remarks didn't really shake the market much, mostly because he avoided hinting at any major shifts in monetary policy. Meanwhile, USD/JPY is actually climbing alongside US equities, hitting the Y107.42 mark and pushing through support levels near Y107.30. Resistance is sitting right around Y107.50, which acts as a technical ceiling.

GBP/USD is climbing toward $1.9766, likely eyeing a test of the $1.9770/80 supply zone next. If that ceiling breaks, we could see a run toward 1.9800, though I guess some traders are already spotting significant interest sitting right at $1.9785.

On the EUR/USD front, the US dollar has been losing steam, sliding down to $1.5726. We’re hovering around 1.5712 now, but market activity is painfully thin—classic summer doldrums, really. There’s still plenty of chatter regarding potential intervention from South Korea. When the South Korean central bank was aggressively offloading dollars, some speculators suspected they might have stepped in as an Euro provider near the 1.5700 mark during the session. For now, supply looks to be holding steady around 1.5725/30. Personally, I think the pair needs more momentum to actually move anywhere meaningful.

The Pound is currently trading above its 5, 21, and 100-day moving averages, which sit at roughly $1.9814, $1.9787, and $1.9797. That said, bearish divergence signals on the daily chart suggest there might be some downside risk in the medium term. I suppose we should watch the $1.9956/63 level closely; it’s a critical resistance zone.

RES 4: $2.0192 (March 27 high)
RES 3: $2.0022/28 (April 21 high, 1% conversion)
RES 2: $2.0002/05 (61.8% Fibonacci from $2.0391, July 1 high)
RES 1: $1.9956/63 (July 11 high, resistance line from Nov 28, 200-day moving average)

Current Price: $1.9886

SUP 1: $1.9796 (July 9 support line, 100-day moving average)
SUP 2: $1.9625/50 (1% conversion, 61.8% Fibonacci between $1.9416 - $2.0005, July 7 low)
SUP 3: $1.9588 (June 23 low)
SUP 4: $1.9430/68 (2% conversion, June 16-17 lows)

Just as most traders anticipated, the Bank of Canada held rates steady today, which helped fuel the ongoing slide in USD/CAD. That move was bolstered by a generally resilient US Dollar. Right now, the pair is testing resistance around C$0.9985/80. If we see a breakdown below that, it could clear a path toward C$0.9960, and eventually down to the C$0.9930/20 range. Looking at the technicals via BBH analysts, the charts suggest further downside risk is quite likely. The first target for those bulls might be the May lows. Beyond that, though, I guess the next logical target would be the February lows near C$0.9710. On the upside, resistance seems to be sitting around C$1.0020 and C$1.0070.

The Euro has been hovering just above its morning lows this Wednesday. It’s currently trading around $1.5934, essentially flat since the session opened. I guess the market is just sitting on its hands right now, waiting for those heavy-hitting inflation numbers out of the USA. As one Trader noted, that $1.60 resistance level is proving to be quite stubborn, repelling any attempts by the Euro to break through. From what I can see, the Euro probably needs some significant external catalyst if it ever hopes to crack that ceiling.

All eyes are on the upcoming US data. We have the Consumer Price Index on the horizon, along with the expected Industrial Production and Capasitz Use figures. Meanwhile, the Yen has been steadily recovering over the last four days, climbing toward the Y165.83 mark against the Euro. One Trader mentioned that this Yen recovery wasn't really anticipated, especially since the Bank of Japan's recent stance has dampened any real optimism for a rally. That said, considering the Yen has slid from Y150 in January all the way down to nearly Y170, most Traders seem to view this current bounce as nothing more than a temporary blip.