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Tuesday's trading ended in red after repeated failure to sustain break above daily cloud. Near-term price action is holding within the cloud in directionless mode and awaiting Fed for stronger signals.

Daily Tenkan-sen that contained Tuesday's easing at 114.51, offers solid support, as Tenkan-sen / Kijun-sen lines are in bullish setup and maintain positive bias.

Daily cloud is thickening and continues to underpin, with final close above it, needed to signal stronger upside action towards next target at 115.91 (Fibo 61.8% of 118.59/111.57descend).

Conversely, increased downside risk could be expected on break below daily cloud base (114.27), while extension below daily Tenkan-sen (113.55) will signal reversal.

Res: 114.99, 115.18, 115.49, 115.91
Sup: 114.51, 114.27, 114.00, 113.55

Cable bounced to 1.2250 zone on Wednesday and reversed Tuesday's losses that hit fresh multi-week low at 1.2107. Again, dips were short-lived and another failure to close below 1.2155 (Fibo 76.4%) pivot, signals strong hesitation of larger bears. However, overall picture is bearish and favors further downside, with eventual firm break below 1.2155 seen as a trigger. Meantime, today's recovery rally that improved near-term studies and probed above initial barrier at 1.2206 (falling 10SMA) signals extended consolidation. Close above 10SMA would give initial signal of basing and possible stronger correction of steep fall from 1.2538 to 1.2107. Firm break above next pivot at 1.2300 is needed to confirm scenario. UK jobs data are in immediate focus, ahead of FOMC, which is expected to give clearer direction signals.

Res: 1.2254, 1.2283, 1.2300, 1.2345
Sup: 1.2206, 1.2177, 1.2153, 1.2107

'The exchange rate is more or less the result of the monetary policies and the different cyclical positions on both sides of the Atlantic.' – Jens Weidmann, Bundesbank (based on Bloomberg)

Pair's Outlook

On Wednesday morning the common European currency was squeezed in by two simple moving averages against the US Dollar just above the 1.06 level. The 20-day SMA was providing support from the downside at 1.0604 level, and the 55-day SMA was putting up resistance to the currency exchange rate at 1.0621 level. It is most likely that the support level will be passed and the rate will continue lower to the first weekly support level, which is located at the 1.0566 mark. Such a move would be consistent with the Federal Reserve announcing a rate hike later in the day.

Traders' Sentiment

SWFX trader sentiment remains bearish, as 54% of all open positions remain short. Meanwhile, 58% of trader set up orders are set to sell the Euro.

'The fact that the GBP now appears cheap is insufficient to sustain a credible recovery by the currency at this stage. We recommend selling sterling on any temporary rally triggered by a shift in market focus. We maintain our target for EUR/GBP close to 0.90 and GBP/USD well below 1.20 in Q3.' – SEB Bank (based on PoundSterlingLive)

Pair's Outlook

The GBP/USD pair was close to touching the 1.21 mark on Tuesday, the lowest level in two months; however, it was able to stabilise above the 1.2150 mark. A sharp rebound was registered earlier today, but the cause of it is USD weakness rather than GBP strength, with US Treasury yields weighing on the US currency. A lot can change after Fed's Minutes are released, which is the main market driver today. First of all, the Cable risks falling under 1.21, should the Fed deliver on a rate hike and provide insight concerning future ones this year. On the other hand, any disappointment would help the Pound regain some ground, with the 1.23 easily seen retaken.

Traders' Sentiment

Bullish traders' sentiment grew stronger, as now 68% of all open positions are long. The share of buy orders edged up from 50 to 56%.

Weekly

    •    Last Candlesticks pattern: Shooting star
    •    Time of formation: 12 Dec 2016
    •    Trend bias: Down

Daily
    •    Last Candlesticks pattern: Shooting star
    •    Time of formation: 1 Nov 2016
    •    Trend bias: Up



Despite falling to 85.85 last week, as aussie found support there again and has rebounded, suggesting further consolidation above this level would be seen an recovery to 87.45-50 cannot be ruled out, however, reckon upside would be limited to 87.75 and price should falter below resistance at 88.15, bring retreat later. A break above said resistance at 88.15 would signal the erratic rise from 72.50 low has resumed for retracement of early downtrend to 89.00,, however, overbought condition should prevent sharp move beyond psychological resistance at 90.00, risk from there is seen for a retreat to take place later.

On the downside, expect pullback to be limited to 86.45-50 and price should stay well above said support at 85.85 and bring another bounce later. Only a break of said support at 85.85 would signal another leg of decline from 88.15 is underway for further fall to 85.50 and possibly towards support at 85.20, a drop below this level would provide confirmation that top has been made, bring retracement of recent upmove to 85.00, then towards 84.50-55 but support at 83.75 should remain intact and bring rebound later.

Recommendation: Would stand aside for this week.

On the weekly chart, aussie has remained confined within near term narrow range, suggesting further sideways trading would be seen and upside bias remains for recent corrective upmove from 72.50 low to resume after consolidation, break of 88.15 resistance would confirm this view and bring retracement of early downtrend to 88.50 and then 89.00-10 but reckon upside would be limited to psychological resistance at 90.00 and previous resistance at 90.70 should remain intact, risk from there is seen for a retreat to take place later.

On the downside, although initial pullback to the Tenkan-Sen (now at 86.60) cannot be ruled out, reckon downside would be limited to support at 85.85 and bring another rise. A weekly close below 85.85 would defer and bring weakness to 85.00-10, however, reckon downside would be limited to 84.10-15 and price should stay above 83.75 support. Only below indicated support at 83.75 would suggest a temporary top has been formed at 88.15 and bring test of previous support at 83.20, break there would add credence to this view, then retracement of recent rise would take place, bring further fall to 82.50 and possibly towards the Kijun-Sen (now at 82.18) which is likely to hold on first testing.

'I think the dollar might have trouble above the 115 level today, with Japanese exporters still seeking to sell above it ahead of the end of the Japanese fiscal year this month.' – Kaneo Ogino, Global-info Co. (based on Reuters)

Pair's Outlook

Strong PPI was insufficient to cause any substantial volatility on Tuesday, but the USD/JPY pair still remained relatively unchanged for the third consecutive day. Some signs suggest the US Dollar is to strengthen again, such as the technical indicators—they are giving strong bullish signals. A possible rate hike today also suggests the Buck could post gains, however, that implies the ascending channel pattern is likely to be broken to the upside. From the technical perspective a plunge would be more probable, as that would preserve the pattern and an eventual retest of the up-trend circa 113.00, where the USD could receive sufficient momentum to pierce the two-year down-trend.

Traders' Sentiment

There are 53% of traders holding long positions (previously 59%), while only 52% of all pending orders are to acquire the Greenback.

'We do not think much will change throughout much of Wednesday ahead of the Fed rate decision and policy statement.' – Edward Meri, INTL FCStone (based on Reuters)

Pair's Outlook

During the early hours of Wednesday's trading session the yellow metal's price fluctuated near the 1,200 mark. This tendency was established already on Tuesday morning, as the markets are expecting the Federal Reserve to announce its rate decision. The markets are expecting the Fed to hike the rate by 0.25%, and that would cause the US Dollar to strengthen, which would force the metal's price to fall. From a technical analysis perspective the commodity price is already positioned to fall down to the 1,186.87 level, where the closest support is located at.

Traders' Sentiment

Traders have not changed their opinion at all, as 52% of open positions remain long, and 69% of trader set up orders are set to buy the metal.

USD/CHF - 1.0083

Most recent candlesticks pattern : N/A

Trend                                    : Sideways

Tenkan-Sen level                  : 1.0085

Kijun-Sen level                    : 1.0089

Ichimoku cloud top                 : 1.0101

Ichimoku cloud bottom              : 1.0084

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Although the greenback has retreated after meeting resistance at 1.0109 and mild downside bias is seen for test of 1.0060 support, however, break there is needed to signal the fall from 1.0171 top has resumed and extend weakness to 1.0035-40 but support at 1.0009 should remain intact, risk from there has increased for a rebound to take place later.

On the upside, above said resistance at 1.0109 would bring rebound to 1.0120 but break of resistance at 1.0142 is needed to signal low is formed and suggest the fall from 1.0171 has ended, bring another rise towards this level later. As near term outlook is still mixed, would be prudent to stand aside in the meantime.

The Euro is slightly bid on Wednesday, following past two days in red. Pullback from 1.0713 high was so far contained bat strong 1.0600 support zone (daily cloud base) where daily Tenkan-sen / Kijun-sen bull cross is forming.

Technical studies are mixed with no clear direction while the pair is holding within 1.0600/50 range (span of daily Ichimoku cloud with cloud top reinforced by falling 100SMA).

Markets are awaiting Fed, with rate hike being widely expected, but focus goes towards Yellen's press conference, to get more hints about central bank's next steps. Another event today that would influence single currency's performance is elections in Netherlands.

Res: 1.0653, 1.0678, 1.0700, 1.0748
Sup: 1.0603, 1.0577, 1.0545, 1.0524

Advance guidance has the desired effect

All the fun has been taken out of trading in the recent past as 'advance guidance' a relatively new phenomenon that is used by both the BoE Governor and Fed Chair defuse the speculation surrounding monetary policy meetings.

Fundamental traders, those who trade based upon economic data and political developments see a vastly reduced opportunity to speculate and tech guys who use charts in the manner of alchemist, poring over graphical representations of currency markets must deal with ever narrowing ranges. As an illustration, the single currency has traded in a 1.0400/1.0800 range since November 2016.

It must be remembered before tauper finally sets in that these are the type of markets ripe for a 'flash crash' should there be a withdrawal of liquidity if a Black Swan event were to occur. It is the nature of a black swan that it is something impossible to predict but the following are some events that I have culled from several published lists (in no particular order):

• China free floats the Yuan
• Another Brexit style departure from the EU
• Inflation in Japan
• Turkey and Russia enter armed conflict
• Iran and Saudi Arabia fight more than a 'proxy war'
• A nuclear or chemical terrorist attack with thousands of casualties

Black Swan lists are overtaking dead pools as traders 'diversion of choice' as years come to an end. The seriousness of these events varies but the effect on markets could be devastating

Today's rate hike by the FOMC is such a case. Janet Yellen has been at pains to explain just what the Fed is looking for to hike rates and traders can join the dots of data releases and determine for themselves that those conditions have been met.

What is a little trickier is determining what the FOMC's longer term stance is and there is no advance guidance for that which means that not only can traders speculate they can also take positions based on their own, unencumbered, views.

It was generally assumed at the start of the year that the Fed had a 'three hike' strategy but they will have hiked twice in the first quarter in addition to which President Trump's promised (but so far undelivered) stimulus is still to come.

Politics makes a comeback.

Following a recent lull in activity, political matters are set to return and provide a driver for the market.

Since his bizarre wire-tapping accusations, President Trump has kept a low (very low for him) profile. It is the nature of the beast that this cannot continue and he is likely to 'break the shackles' and pronounce on currency manipulation, the performance of the Fed, the building of the wall, or some other issue where he feels stomping down with his size ten would be a Presidential action.

The Dutch go to the polls today with the spat with Turkey resonating across Europe. With such a right-wing opponent standing against him with an 'anti-everything that isn't Dutch platform, Prime Minister Mark Rutte has uncovered a tough side in dealing with the rhetoric of Turkish President Tayyip Erdogan.

The Brexit Bill has finally passed through parliament and will allow Prime Minister May to trigger Article 50 and start the process. Since this is an unprecedented event, market reaction will be interesting. There are very few events that are so 'emotional' and trader's reaction driven by their own feelings about the EU will cloud judgements and produce wholly unpredictable results.

France is voting for a new President on 23rd April with a final runoff on May 7th. It is notable that many newspaper and web-based articles have sprung up questioning just how Right Wing National Front Candidate Marine le Pen really is. Whether it is her opponents trying to defuse populist/ nationalist sentiment or her own supporters trying to show she is more electable the whole process will be played out over the next six weeks providing gyrations for the single currency which are unlikely to break the 'well-trod path' of his year's ranges.

Germans and Italians will look on with interest since there is an election in Germany this September as well as the possibility the Italian Prime Minister may call an election if he sees no way out of the constitutional crisis that continues to pervade Italian politics.