FUNDYS
Trading volume is seriously diminishing as we head closer to the major holiday weekend and it seems as though whatever the respective trends were for specific pairs and crosses going into the lightened holiday trade, are continuing in the final days of the year. The major currencies have mostly been locked in some consolidation, while many of the crosses have been pushing to record and multi-year levels. This specifically includes the Swiss and Aussie related crosses which continue to stand out and outperform across the board.
Relative Performance Versus USD Wednesday (As of 12:00GMT)
- SWISSIE+0.51%
- EURO +0.34%
- CAD+0.33%
- YEN+0.21%
- AUSSIE+0.06%
- KIWI+0.01%
- STERLING-0.08%
On Tuesday we wrote…”Of all of the Aussie related crosses, Eur/Aud stands out the most to us, with the market in a virtual freefall over the past several months, continuing to post fresh multi-year lows. Of course the relative outperformance in the Australian Dollar in recent years also can be reflected through other overdone markets including; Aud/Cad, Gbp/Aud, and Aud/Nzd to name a few.”
We would however remind our readers that we are somewhat pleased to see the continued drop in Eur/Aud as it is our favorite trade for 2011. The lower it is at the start of 2011 the better. Let’s get as much of the remaining selling out of the way now!!
Tuesday’s commentary continued…”As far as other currency cross rates are concerned, it is the Swiss Franc crosses which really stand out, with both Eur/Chf and Gbp/Chf trading by record lows as relative outperformance in the Franc also dominates trade. We continue to find it fascinating that two currencies which have outperformed dramatically in recent months have been currencies that traditionally stand at opposite ends of the spectrum in terms of their respective risk profiles. It seems as though this price action can be attributed to a broader negative US Dollar sentiment which leaves the Franc as a more attractive safe haven alternative in investment portfolios, while the Aussie benefits as the most attractive risk positive option.”
The USD has actually also held up quite well in recent days, particularly against the Euro which remains under pressure as ongoing ratings downgrades in the Eurozone continue to weigh heavily on the major currency. Most recently, Fitch has placed Greece on rating watch negative, citing a “heightened probability” of a downgrade. This already follows Moody’s warning of a potential downgrade to Portugal. Meanwhile, Citigroup hasn’t helped matters after calling for a fresh wave of bank failures and sovereign defaults, unless the EU can come up with a better response to the crisis. However, attempts to the prop the market on Wednesday have proven somewhat successful for the time being, after a story from a local Portuguese newspaper reported that China was considering a purchase of EUR4-5B of Portuguese debt. The PBOC has since declined to comment on the matter.
Other currencies which have been struggling a bit of late include the Pound and Canadian Dollar. The Pound which has already suffered another blow after the awful public finance data from Tuesday, has seen some more offers emerge on the back of some weaker than expected Q3 GDP numbers, and growing concerns that the government won’t be able to meet its deficit cutting target. The release of the BOE Minutes has failed to really influence price action, although there were some small bids in Cable with the Minutes showing a recognition from the MPC of upside inflation risks. The relative weakness in the Canadian Dollar also is of interest, with the single currency most recently taking a hit on some softer inflation data.
In Asian trade Australia’s Westpac-MI’s leading index of economic activity showed a pullback in annualized growth, while in Japan, the unadjusted trade surplus came in weaker than forecast. Also out of Japan, the government released its economic forecasts which remained subdued. The government also reiterated that decisive steps would be taken on the Yen’s rise if necessary. However, these developments have hardly factored into price action, with the Yen continuing to go nowhere.
Looking ahead, US personal consumption (2.9% expected) and annualized GDP (2.8% expected) are due at 13:30GMT, followed by existing home sales (4.74M expected) and the house price index (-0.2% expected) at 15:00GMT. Oil and gas inventory data rounds things out at 15:30GMT. US equity futures remain marginally offered, while commodities are tracking higher.
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 0.9500. While recent bearish price action certainly threatens recovery outlook, ability to hold above 0.9460 keeps the structure intact.
FLOWS
A semi-official account on the bid in Usd/Jpy amid system account sales. Asian central banks seen again on the bid in Eur/Usd along with a major Japanese name and intraday spec types.
TRADE OF THE DAY
EUR/CHF: On Tuesday we took a shot buying the cross ahead of 1.2500 but after showing no follow though earlier today we were happy to exit the position at cost. The market has since dropped to yet another fresh record low below psychological barriers at 1.2500 to once again leave the chart showing oversold across the board. Monthly, weekly, daily and hourly studies are looking stretched, and we continue to advocate attempts at buying this cross in anticipation of a much needed healthy corrective rebound. Our entry for the position has once again taken into account the daily ATR, so if triggered, any additional declines on Wednesday should be limited. STRATEGY: BUY @1.2460 FOR AN OPEN OBJECTIVE; STOP 1.2360. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON WEDNESDAY.
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