ECB Constancio: Markets Missed ECB’s Forward Guidance

h3 Forex News and Events:/h3 The week starts with intensifying tensions in Crimea. As the Russian Confederation is reported ready to attack, the G7 leaders meet in The Heague to discuss solutions. The CEE currencies opened the week mostly weaker versus USD, interestingly RUB is 0.30% higher at the time of writing. EUR trades under selling pressures this morning given the mixed PMI numbers released in the morning. The ECB Vice President Constancio’s dovish comments over the week-end weigh on EUR-complex. In China, the weakness in manufacturing PMI reading didn’t prevent USD/CNY from trading below 6.2000 for the first time since Fed meeting.

ECB Constancio says “Markets missed ECB’s forward guidance”

The ECB’s Vice President Constancio spoke at a Fed-sponsored conference in Saturday and made dovish comments on ECB policy. Constancio said that the ECB do not focus on threshold-linked rate guidance, adding that the markets have completely missed ECB’s point in linking its forward guidance to the closure of slack in the economy in March meeting. Combined to hawkish Fed policy outlook, we expect the downside pressures to continue weighing on EUR versus USD. EURUSD has stepped in the bearish consolidation zone post-Fed on March 19th.

EUR/USD made a flat start to the week, shortly rallied to 1.3825 as French manufacturing and services PMI stepped in the expansion zone in March preliminary reading (according to Markit), and gave back gains on slower German expansion. Overall Euro-zone PMI announces slowdown in March while the bearish trend (building since Mar 19th) keeps the upside vulnerable. March 18th CFTC data showed that the speculative long future positions are at highest levels since November 2013. The high volume of speculative longs warns of a EUR-unwind risk in the coming weeks as traders are likely to adjust positions to unexpected shift in Fed expectations. However, there is no reason to precipitate the EUR sales given the mounting tensions in Crimea. The EUR demand versus CEE currencies should keep the downside moves moderated. We keep our bearish view as long as 1.3845 (pre-Fed resistance) holds. The first line of support is placed at 1.3752 (Fibonacci 23.6% on Nov-Dec retracement), light option offers wait to be tipped below.

Regarding EUR/GBP, the bullish momentum loses pace yet remains comfortably positive. Offers are solid pre 0.83915 / 0.84000 (Fibonacci 61.8% on Aug’13 – Feb’14 drop / optionality), if broken will bring EUR/GBP to its 200 dma (currently standing at 0.84209).

EUR/CHF hit 1.22025 on PMI readings this morning. Resistance is seen at 1.22000 (Feb-Mar downtrend top), if broken EUR/CHF will run into option bids above 1.22000 with today and tomorrow expiries.h3
USD/CNY sell-off below 6.2000/h3

h3 The Risk Today:/h3

EUR/USD EUR/USD has broken the support implied by its rising channel, invalidating the uptrend in place since February. The short-term technical structure is negative as long as prices remain below the resistance at 1.3845 (20/03/2014 high). Supports can be found at 1.3708 (05/03/2014 low) and 1.3643. Another resistance lies at 1.3880 (18/03/2014 low). In the medium-term, the break of the support at 1.3834 (11/03/2014 low, see also the rising channel) coupled with general overbought conditions favour a move lower towards the support at 1.3643. The recent high at 1.3967 is likely to act as a strong resistance.

GBP/USD GBP/USD is challenging the support implied by its rising channel (around 1.6466). Hourly resistances are given by 1.6568 and the declining channel (around 1.6607). Another support can be found at 1.6252 (05/02/2014 low). In the longer term, a break to the downside out of the rising channel would negate the current bullish bias implied by the break of the resistance at 1.6668 (24/01/2014 high). A strong horizontal support stands at 1.6220 (17/12/2013 low).

USD/JPY USD/JPY has bounced sharply near the key support at 101.20. Monitor the hourly resistance at 102.68, as a break would favour a second upleg towards 103.42. Another resistance stands at 103.76. An hourly support lies at 102.02 (21/03/2014 low). A long-term bullish bias is favoured as long as the key support area given by the 200 day moving average (around 100.48) and 99.57 (see also the rising trendline from the 93.79 low (13/06/2013)) holds. A major resistance stands at 110.66 (15/08/2008 high).

USD/CHF USD/CHF has thus far failed to decisively break the resistance implied by its declining trendline. A resistance now stands at 0.8869 (20/03/2014 high). Hourly supports can be found at 0.8800 (20/03/2014 low) and 0.8765 (13/03/2014 high). Another resistance can be found at 0.8930 (26/02/2014 high). From a longer term perspective, the structure present since 0.9972 (24/07/2012) is seen as a large corrective phase. A break of the declining trendline is needed to improve the medium-term technical structure.