We made it! Finally, the FX market broke through the magic 100 number on USD/JPY. The upmove in USD started with yet another better-than-expected jobless claims figure, but it’s hard to say exactly what the catalyst for the later leg up was; it seems to be an example of herding rather than a move triggered by any particular event or statement. Setting the positive mood for the dollar were statements by Fed officials suggesting that the beginning of the end of quantitative easing could be in sight. Of course a noted hawk like Phili Fed President Plosser (5 out of 5 on the Thompson/Reuters Dove-Hawk scale) was always going to be hawkish (as indeed he was), so the key point was whether the dovish Chicago Fed President Evans (rated a 1 – the opposite end of the spectrum) had changed his mind. He said that “the labor market has improved, definitely” but that he wanted to see the improvement sustained through the summer. Looked at another way, even he thought another three or four months of nonfarm payrolls at recent levels and the Fed could start tapering off.The dollar’s biggest gains were against JPY but the US currency rose virtually against every currency we track, the opposite of Wednesday’s action. There are plenty of other central banks left to ease (South Korea, Vietnam and Sri Lanka cut rates overnight, for example), and don’t forget that Japan is just getting started and is planning to do more in the next two years than the Fed has done in the last four – and that in a much smaller economy. As a result, we expect USD to trend higher as the market anticipates the eventual withdrawal of stimulus there while other central banks around the world that were slower in easing continue to use the opportunity presented by declining inflation to support their economies (and weaken their currencies) with low interest rates.Today the focus will be on a speech by Chairman Bernanke, the ultimate arbiter on the FOMC and moderately dovish (rated a 2). Kansas City Fed President George, another hawkish FOMC member (rated 4 out of 5), will speak on the economy at Jackson Hole, while Evans will be making another speech. The G7 finance ministers and central bank chiefs meet later this evening in London and the US is expected to make the case to Europe that more growth and less austerity would be appropriate at the current time. German Finance Minister Schaeuble seems to be getting the message; he said yesterday that EU governments had “enough room to manoeuvre” in fighting the recession.The MarketEUR/USD
EUR/USD” title=”EUR/USD” width=”800″ height=”458″ />• EUR/USD fell yesterday finding spike trendline support following the release of the lowest US initial jobless claims figure since January 2008 and the lowest continuous claims since April 2008. The improved U.S. labour market figures and remarks by Fed officials triggered a further decline for the pair, which found support at its 50-day MA and the Parabolic SAR stop-loss at 1.3010. Initial resistance for the day may come in the well-tested 1.3055 – 1.3075 area, with spike trendline support turned resistance coming at 1.3093. Strong support looks to come around 1.2985, which sees the 200-day MA and the 23.6% retracement level of the February – March decline. Further trendline support may come at 1.2935, with higher resistance coming at 1.3120. the 38.2% retracement level of the aforementioned plunge.USD/JPY
USD/JPY” title=”USD/JPY” width=”800″ height=”458″ />• USD/JPY was a major gainer yesterday as it broke out from the 100 level. Initial resistance following the US jobless claims came at 99.35, with a breakout being triggered thereafter despite the overbought RSI and Stochastics levels. Short-lived resistance came at 99.85, with the pair hitting 100.75 before the release of data showing that Japanese investors were net buyers of foreign bonds in the last two weeks, which led to a high of 101.20. Strong resistance is likely to come in the 101.50 – 101.65 area, which sees the 5-year high that has acted as final support twice in the 12-year period from 1995 to 2007.AUD/USD
AUD/USD” title=”AUD/USD” width=”800″ height=”458″ />• AUD/USD declined yesterday, finding support at 1.0185 following the US jobless claims data. Thereafter the break of the 1.0150 significant support level that had been tested five times the past 10 months triggered a breakdown, with the pair finding support at 1.0050, the 61.8% retracement level of the rally in the second half of 2012. A breakdown from this support level will likely drive the pair towards 0.9900, the 23.6% retracement level of the March 2009 – April 2011 up move, with further support coming at 0.9700, the 1½ year low. 1.0150 and 1.020 are now likely to act as resistance levels.Gold
• Gold lost some of its shine yesterday as the strong US claims data and the prospect of the Fed tapering off QE strengthened the dollar, driving gold to trendline and notable Fibonacci support at $1450, the 38.2% retracement level of the rally following the financial crisis. A break of $1450 may see price moving towards the $1423 – 1431 area, with strong support thereafter at $1400, with strong resistance still being found at $1476 and spike resistance at $1485.Oil
• WTI’s retracement from resistance in the $96.60 – 96.75 area found Fibonacci and trendline support at $95.60, rebounding from that level following the improved U.S. labour market and economic outlook. Thereafter, a minor break of support at $95.35 did not lead to a breakdown, as the commodity recovered, forming a hammer candlestick on the one hour chart at near oversold levels leading to a rebound to $96.45, before retesting trendline and Fibonacci support. Resistance above the noted area may come at $97.25, the eight-month long downward-sloping trendline that has been tested four times, with further resistance at the 2013 high of $98.60. Lower support below the well-tested $95.60 may be found at $94.50.