FUNDYS
We are in the final days of trade for 2010, and the price action is not disappointing, with the market trading in a very choppy, directionless, unpredictable manner. Any Euro bids have been quickly sold to keep the major locked in some consolidation, while price action in Sterling has been similar. Meanwhile, the Swiss Franc has broken to fresh record highs against the buck, but at the same time has failed to hold onto to those gains with Usd/Chf immediately rebounding back above 0.9500 and holding above the previous record lows from September by 0.9560 to still suggest that a material base could be carving. Usd/Jpy has also broken down through critical short-term support by 82.00, but as per our analysis, inability to close below 82.00 keeps the multi-day consolidation intact and leaves the door open for a bounce back to retest and break the range highs by 84.50. Fundamentally, the latest Yen surge has also ramped up Yen rhetoric from local officials which should also serve as a prop for Usd/Jpy.
Relative Performance Versus USD Wednesday (As of 11:10GMT)
- KIWI+0.75%
- AUSSIE +0.38%
- YEN+0.32%
- CAD+0.25%
- STERLING+0.15%
- EURO+0.05%
- SWISSIE+0.01%
The commodity bloc continues to outperform, although, Aud/Usd has stalled out ahead of the post-float record highs from November, while Usd/Cad has once again failed to sustain any declines below parity. On the cross front, we continue to pay close attention to the Swiss and Aussie crosses, with both currencies standing out as the major outperformers. Eur/Chf and Gbp/Chf trade by record lows, while Eur/Aud and Gbp/Aud are also at major long-term cyclical lows. As such, we anticipate some form of a material catalyst into 2011 which will reverse these trends and offer some very compelling trade opportunities. Elsewhere, the Yen crosses have come back under some intense pressure with Eur/Jpy breaking to fresh multi-day lows below 108.00 and Gbp/Jpy dropping back into the 126.00’s. However, here too, we see risks for bullish reversals over the short-term at a minimum.
Data released in Europe saw German inflation come in higher than expected, and Eurozone M3 also above forecast. Meanwhile, the Swiss KOF leading indicator also managed to exceed expectation. Other news has included warnings from Moody’s that austerity may not be enough to help some of the EMU peripherals stave off default, and concerns out of the UK over the outlook for the local economy with housing, unemployment and the financial sector all brought into question.
Moving on, there has been an escalation in talk over the direction of Fed policy going forward, with a number of notable hawks set to move into the FOMC voting rotation in 2011. Fed Plosser and Fisher are the key names, and given the current state of hyper-accommodation, we could start to see some major resistance with these views playing an influence on price action in the markets. Clearly the addition of these members makes a stronger case for broader USD upside, as they focus more on the need to raise rates to offset very real longer-term inflationary threats.
Looking ahead, the North American economic calendar is quite uneventful with US mortgage applications at 12:00GMT followed by Canada Teranet/National Bank HPI at 14:00GMT. US equity futures are marginally higher while commodities have been consolidating their latest gains and track slightly lower.
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, 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 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: Despite the latest drop to fresh record lows on Tuesday by 0.9435, inability to close below the previous record lows by 0.9460 and subsequent break and close back above 0.9500 keeps our basing bias intact and we continue to look for some major upside over the medium and longer-term. Cyclical studies are showing oversold and any additional declines below 0.9400 are not seen as sustainable. Look for a break back above 0.9700 to confirm and relieve immediate downside pressures, while only a close below 0.9400 gives reason for concern.
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