FUNDYS
Currencies have managed to regain their bid tone over the past couple of sessions, with the USD being sold quite significantly across the board. Given the exceptionally lightened holiday trade, the price action does not carry with it as much meaning and it is actually quite common to see some broad based US Dollar selling into year end. The gains have been led by the Swiss Franc (Usd/Chf), which has easily tripped some buy stops below 0.9500 and now has it sights set on next key downside barriers by 1.0460 (record lows from September). SNB Hildebrand has been on the wires discussing the “burden” of the stronger currency and analysts have outlined the problem that the central bank is powerless to stop additional appreciation in the currency. Still, while the market holds above 0.9460 on a close basis, we retain a constructive outlook.
Relative Performance Versus USD Tuesday (As of 9:45GMT)
- SWISSIE+1.13%
- YEN +0.64%
- AUSSIE+0.49%
- EURO+0.47%
- KIWI+0.41%
- CAD+0.28%
- STERLING+0.08%
While the Franc gains make sense to a degree, the gains in the rest of the currency market against the USD might be interpreted as somewhat counterintuitive given the latest slide in the Chinese markets. The weekend rate hike has weighed on local equities and sends a message that there is a very real possibility that growth will be notably compromised in the world’s fastest growing economy over the coming year. Any anticipated slowdown in growth out of China should also weigh on some of the major currencies which very much rely on the prosperity of the Chinese economy. We are however pleased to see that despite the broad based currency gains against the buck on Tuesday, the commodity bloc has been underperforming, which is comforting given the bloc’s higher correlation to Chinese performance. We are actually long the Eur/Aud cross from 1.3070; stop 1.2970, and see room for a great deal of upside over the coming days and weeks.
On the data front, we have seen a good amount out of Japan on Tuesday. Core nationwide inflation contracted for the 21st consecutive month, the unemployment rate held steady at 5.1%, while household spending, industrial production and retail sales all rebounded. Usd/Jpy has come under some decent pressure and is now testing the bottom of the daily Ichimoku cloud. We consider 82.00 to be the key level to watch below, with only a break and close below the figure to force a shift in our constructive outlook. Meanwhile, the Yen crosses seem to be finding some support by some key multi-day range lows and could very well be poised for some decent upside ahead. Elsewhere, French GDP was weaker than expected, while the Swiss UBS consumption indicator dropped off from the previous print. Meanwhile in the UK, a Boxing Day survey was highly disconcerting after the results showed 25% less interest in shopping compared to last year.
Looking ahead, things pick up in North America with a busier economic calendar. Case Shiller (-0.6% expected) is due at 14:00GMT, followed by consumer confidence (56.4 expected) and the Richmond Fed (11 expected) at 15:00GMT. US equity futures are marginally bid, while commodities are also tracking higher on the day.
TECHS
EUR/USD:The market has mostly been locked in a choppy consolidation over the past several days, but a lower top looks to have carved out by 1.3500, with a break back below 1.2970 over the coming sessions to confirm and open the next major downside extension towards the 1.2585 platform base from August 2010. As such, any intraday rallies towards the 1.3300 area should be used as formidable sell opportunities.
USD/JPY:Despite the latest pullbacks below 83.00, the market still remains confined to a broader consolidation, and while the price holds above the bottom of the Ichimoku cloud on a close basis, the overall outlook remains constructive with dips towards 82.00 to be used as compelling buy opportunities. A break and close back above 84.50 will however be required to end what is perceived to be a bullish consolidation and accelerate gains. A close below 82.00 on the other hand, would compromise outlook and give reason for pause.
GBP/USD:The market remains under pressure and now seems poised for a retest of the platform base from early September at 1.5295. Daily studies are however looking a little stretched so we would not rule out the possibility for a bit of a bounce over the coming sessions towards the 1.5700 area from where a fresh lower top will be sought out ahead of an eventual drop to challenge and break 1.5295. In the interim, we remain sidelined and await a clearer signal.
USD/CHF: Setbacks have most recently stalled out just shy of the record lows by 0.9460 from October, and with daily studies looking a little stretched, we would expect to see any additional declines very well supported in favor of a major bullish reversal. Cyclical studies continue to warn of a major trend shift at current levels, and a bullish outside day last Thursday after failing to establish fresh record lows, could very well act as the initial catalyst for said reversal. Look for a break back above 0.9735 to confirm and accelerate gains. A break and close back below 0.9460 delays.
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