Euro Mounts Counteroffensive Ahead of FOMC- JPY Advances Tempered

DailyFX   |  June 19 2012 1:34 EDT

The dollar is under substantial pressure ahead of tomorrow’s FOMC rate decision with the greenback falling against all its major counterparts. Here are the key levels in play on the USDJPY andEURUSD.

Daily Winners and Losers

The euro is the top performing currency at the close of European trade with an advance of 1.03% on the session. Broader risk appetite has remained well supported in early US trade as newswires reported a steady stream of progressive developments out of Europe and amid speculation that the Fed will embark on further easing to support the fragile recovery. The greenback is weaker against all its major counterparts as bets for another round of quantitative easing continue to mount with today’s risk on environment exacerbating the decline.

A look at the encompassing structure sees the EURUSD trading within the confines of an embedded ascending channel formation dating back to the June 1st lows with the single currency breaching above the 50% Fibonacci extension taken from the October and February highs at 1.2675 early in the session. Interim daily resistance rests with the Sunday highs at 1.2745 backed by 1.2823 and the 38.2% extension at 1.2867. Note that daily RSI has now broken above trendline resistance dating back to the March highs with only a break below channel support in price action at 1.2545 dispelling further topside advances.

The scalp chart shows the EURUSD breaking above the 61.8% Fibonacci extension taken from the June 1st and 12th troughs at 1.2675 (confluence of the 50% Fibonacci extension on the daily chart) before losing steam at the 1.27-figure. Subsequent topside targets are eyed at the 78.6% extension at 1.2740, 1.2780, the 1.28-handle and 1.2820. A break back below interim support eyes floors at 1.2655, the 50% extension at 1.2630 and the 38.2% extension at 1.2585. A move below channel support alleviates some of the pressure on the greenback with such scenario eyeing targets at 1.2530 and the 1.25-handle. Look for the pair to remain well supported heading into tomorrow’s FOMC rate decision where all eyes will be on Bernanke as market participants attempt to ascertain the likelihood of further Fed easing.

Key Levels/Indicators

The Japanese yen is the weakest performer against the greenback with a fractional advance of just 0.10% on the session despite broad-based dollar losses. Although risk-on environments typically bode well for the USDJPY pair, QE bets have continued to weigh on dollar prospects with the pair continuing to hold within the confines of a descending channel formation off the March highs. Critical resistance now stands at the confluence of the 61.8% Fibonacci retracement taken from the February advance and channel resistance at 79.14. We have maintained our long position pending a break of this formation with such a scenario eyeing topside targets at the 50% retracement at 80.10, the 100-day moving average at 80.35 and the 38.2% retracement at 81.05. Note that the breach would likely be accompanied by an RSI break above trendline resistance dating back to February with our stops now positioned just below the 200-day moving average at 78.77.

The scalp chart shows the USDJPY resting just above soft support at 78.85 with subsequent floors seen at 78.60, 78.20 and 77.95. A topside break above the 23.6% retracement, taken from the March decline, at 79.20 eyes resistance targets at 79.70, the 38.2% retracement at 80.12 and 80.55. Note that a daily ATR of just 62pips is not favorable for scalps with our positioning on the yen aimed at longer term daily targets at this time.

Key Levels/Indicators

---Written by Michael Boutros, Currency Strategist with DailyFX.com

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