FUNDYS
Japan was closed for holidays and overall price action thus far has been quite uneventful in early Thursday trade. The Yen has actually been the most active major currency on Thursday, gaining a bit, but the price action could very well be attributed to the closed session of trade. Things are going to really lighten up significantly into today and tomorrow ahead of the holidays, and this is a recipe for an unpredictable market that will either do nothing at all, or make some wild moves on the very low volume trading. Either way, trading in these conditions is not recommended, and if you do take some shots, it is extremely important that very tight risk management is employed.
Relative Performance Versus USD Thursday (As of 10:15GMT)
- YEN+0.71%
- KIWI +0.70%
- AUSSIE+0.56%
- EURO+0.05%
- STERLING+0.01%
- CAD-0.12%
- SWISSIE-0.14%
The Swiss Franc and Australian Dollar continue to outperform (Eur/Aud cross by 1.3000; see below), with many of these cross rates trading to record and multi-year levels, while the major currency pairs have mostly been locked in consolidation. The news that China could be buying Portuguese bonds has been helping to buoy the Euro a bit, while the approval of the 2011 austerity budget in Greece, and Euro supportive comments from ECB Kranjec have also helped to prop for now. Nevertheless, ongoing downgrades and rating agency warnings can not be ignored and seem to be weighing more heavily on overall price action at the end of the day. Additionally, the major central banks have agreed to extend the temporary currency swap arrangements through August 1, 2011, which suggests that there is still a good deal of concern over the debt problems in the Eurozone.
Meanwhile, the Pound continues to be an underperformer, with weak economic data and downbeat economic forecasts proving too much to ignore. The latest data has produced a weaker than expected Q3 GDP print, wider current account, and softer mortgage approvals. In New Zealand, FinMin English has been out trying to downplay the latest contraction in Q3 GDP, which was softer than expected, and these comments have helped to keep the currency bid on the day thus far (surprisingly the strongest currency on the day). The FinMin said that the economy will build momentum into 2011, and the recovery is on track. We would however not read too much into this latest Kiwi surge with the local economy still very much showing signs of weakness.
Looking ahead, Canada GDP (0.3% expected) is due at 13:30GMT along with US durable goods (-0.5% expected), personal income (0.2% expected), personal spending (0.5% expected), initial jobless claims (420k expected) and continuing claims (4100k expected). University of Michigan confidence (74.5 expected) is then out at 14:55GMT, with new home sales rounding things out at 15:00GMT. US equity futures and commodities prices have turned lower ahead of the North American open and are now tracking slightly in the red.
TECHS
EUR/USD:Last Friday’s break back below the recent platform base at 1.3165 is significant and helps to increase the probability for a bearish resumption back towards and eventually below next key support by 1.2970. A bearish outside day on Friday and confirmed bearish outside week also has helped to strengthen our core downside bias. Look for any rallies to now be well capped below 1.3300 on a close basis, with a lower top sought ahead of the next drop below 1.2970 over the coming sessions. Ultimately, only a break back above 1.3500 would negate bias and give reason for concern.
USD/JPY:Although the market continues to recover with prospects for a material base looking more and more encouraging following the recent break back above the daily Ichimoku cloud, inability to establish any meaningful upside momentum beyond 84.00 suggests that the recovery could be on hold for a bit, with the market now in the process of consolidating. Ultimately however, while the pair holds above 82.00 on a close basis, we retain a constructive outlook. Only a daily close back below 82.00 will negate and open the door for a resumption of the broader underlying downtrend, while a break and close back above 84.50 will mark and end to the consolidation and open a fresh upside extension towards 86.00.
GBP/USD:The sharp pullback in the previous week signals an end to the latest corrective channel, with the market breaking back below the recent 1.5595 base and exposing the next drop towards 1.5295 over the coming sessions. A lower top now looks to be firmly in place by 1.5910, and any intraday rallies are expected to be well capped in the 1.5700 area going forward. Ultimately, only back above 1.5780 gives reason for concern.
USD/CHF: We contend that the market is in the process of carving a material base by 0.9460, and any setbacks should be very well supported in favor of a sustained recovery. The market should soon recover and look to rally beyond parity towards our next key topside objective in the 1.0280-1.0500 area over the coming weeks. The 1.0280 resistance represents the highs from September, while the 1.0500 area is the 200-Day SMA. Any intraday setbacks are expected to be well supported ahead of 0.9460.
FLOWS
French bank on the offer in Eur/Usd. Model funds and futures accounts selling Usd/Jpy. Asian fund demand for Aussie; offers ahead of 1.0100. Leveraged names selling Gbp/Usd; US bank also on the offer. Local names on the bid in Usd/Cad.
TRADE OF THE DAY
EUR/AUD: This is our favorite trade for 2011 in general and with the market trading by fresh multi-year lows and deeply oversold, the risks for a major corrective bounce seem highly probable. We have taken shots over the past few days with no downside, and will once again look to buy on a dip on Thursday. The cross is on the verge of testing next major psychological barriers by 1.3000 and any additional declines below this level are not seen as sustainable. Should the trade trigger, it will have monthly, weekly, daily, and hourly studies all in oversold territory at the same time. This is a very rare occurrence and should be a red flag a potential trend change. STRATEGY: BUY @1.3000 FOR AN OPEN OBJECTIVE; STOP 1.2880. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON THURSDAY.
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