USD: The Dollar has already shown some corrective anticipation in advance of the Fed testimony today. With recent inflation data showing negative readings and some US data mixed, that should leave the Fed in a position to continue bond buying efforts. Some traders might suggest that the recent Dollar peak was at least partially the result of expectations of a start to tapering in the month of June. While the Fed might ultimately decide to begin tapering in June, there might not be justification for the Fed to telegraph that stance without seeing the May US unemployment data. Another element providing a slight undermine to the Dollar is ongoing strength in the Yuan, which in turn continues to rise off PBOC statements. Some traders expect the Dollar to get a reaction to US existing home sales figures this morning but that news is likely to be temporarily discounted until the Fed Chairman information is known later in the session. For the Dollar to resume the sharp May rise today, probably requires a definitively hawkish Fed result and we think that is unlikely. Therefore we see extremely critical support in the June Dollar Index this morning at 83.80 and then again down at 83.73.
EUR: In addition to some spillover support from initial weakness in the Dollar, this morning, the Euro is also garnering some lift from a fresh two year Euro high versus the Swiss. While the Euro might gain relative to the Swiss off ideas that the SNB might be poised to allow negative rates ahead, that type of dialogue also highlights the polar opposite interest rate differential setup in Europe and the US. While the Euro might temporarily benefit from partially dovish dialogue from the US Fed today, that potential lift should be short lived and the down trend in the Euro should be expected to prevail until Euro zone numbers show consistent improvement. Recovery capacity today is seen up at 1.30.
GBP: The Pound has forged another downside breakout on the charts and that in turn pushed prices down to the lowest level since April 4th. BOE hints at the need for more easing, has clearly undermined the Pound, but seeing CBI Industrial output falling to +18 reading in May from a +23 reading in April would seem to increase the prospects of more easing from the BOE ahead. With the BOE also suggesting that ongoing slowing in the Euro zone was a major impediment to recovery in the UK, that would also seem to leave the June Pound poised for a return to even numbers of 1.50.
JPY: The down trend pattern in the Yen remains in place but perhaps a fleeting recovery bounce will be seen today in the wake of Fed testimony. Down trend channel resistance in the June Yen today is seen up at 99.62 but closer in resistance is seen at 97.97. BOJ comments overnight suggest that aggressive easing measures will continue to be implemented, but that they won’t allow for ongoing volatility in JGB instruments. Aggressive traders should look to a bounce back to 97.97 to implement fresh short side plays.
CHF: With the Swiss falling to fresh two year low relative to the Euro this morning, it would seem like hints of the prospect of negative interest rates from the SNB has given the bear camp an additional story line. The failure to hold above 1.0258 in the June Swiss could prompt a fresh wave of technical selling, but the Swiss might be temporarily cushioned against the downside by US Fed comments later today. We would suggest that traders look to sell a Fed inspired bounce in the Swiss today, if that kind of action is seen.
CAD: Like other non Dollar markets, the Canadian remains under pressure on the charts. While metals prices are initially higher to start today, weakness in energy prices would seem to leave the outside market environment mixed for the C$. However, with the sharp slide in the Canadian this month and the approach of the even number 97 level, it could be difficult to knock the Canadian down to the March lows. However, we can’t rule out a retest of the recent lows of 96.73, but we have to think that the risk of being short the Canadian will rise significantly around that level.