EUR/USD Classical: Euro Eyes Key Support by 1.2970

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. The latest topside failure above 1.3400 and subsequent sharp pullback strengthen our bias and a retest of next key short-term support by 1.3055 which guards against 1.2970 is expected over the near-term. From here, any intraday rallies should be well capped ahead of 1.3300.

5:50 AM | 0 comments | Read More

Euro Holding True to Form; Latest Topside Failure Anticipated

FUNDYS

We were not at all surprised to see the sell-off in the Euro on Tuesday, following an early surge above 1.3400. Technically, we have been talking of the expected formation of a medium-term lower top by 1.3500, with any rallies above 1.3400 to be very well capped. The latest sharp pullback reaffirms our outlook and once again puts the pressure back on the downside with the market eying a retest and break of the critical lows by 1.2970 over the coming sessions.

Relative Performance Versus USD Wednesday (As of 11:20GMT)

1. STERLING-0.12%
2. YEN -0.13%
3. CAD-0.29%
4. KIWI-0.34%
5. SWISSIE-0.39%
6. AUSSIE-0.49%
7. EURO-0.71%

Fundamentally, the initial Euro selling was triggered by some bearish comments from the PBOC president on the outlook for the Chinese economy, while DIW’s negative views over the prospects for a healthy German economy were also seen weighing. Additionally, Greek-German spreads have widened out to record levels, while market participants have also been digesting the latest Portuguese auction. Meanwhile, economic data out of the US has continued to show impressive recovery, with the most recent releases coming in the form of solid ISM manufacturing and factory orders. The resurgence in the US economy has also now been reflected in the latest FOMC Minutes from December with the Fed outlining that it is expecting growth to pick up. As we have already talked about in previous commentary, Fed monetary policy can only really go in one direction from here, and as the central bank becomes less accommodative, the USD Dollar should find additional support.

Another interesting point of note is that the latest IMF COFER (Currency Composition of Foreign Exchange Reserves) data which shows the aggregate of FX reserves for 106 countries shows an increase in the amount of USD reserves, while at the same time also showing that central banks have been moving away from the Euro. While data like this should be taken with a grain of salt, as there are a number of factors that need to be considered, we definitely would give it some recognition in terms of the general negative sentiment shift in the Euro.

On the data front, Eurozone releases haven’t been all that Euro negative, with Germany and EC services PMIs coming in better than expected, while Eurozone PPI was higher than consensus. However, it seems broader macro forces are at play, with this data failing to prop intraday. A much softer Eurozone industrial new orders could also be weighing on the single currency. Meanwhile in the UK, the story has been quite different with UK construction PMI disappointing but failing to factor into what has been a very well bid Pound in recent trade. As a result, the EUR/GBP cross has come under some intense pressure over the past couple of days and eyes next support by 0.8430.

Moving on, as we glance at developments in the other major currencies we see that USD/JPY has been recovering, but still needs to establish back above the Ichimoku cloud top to officially secure the latest bounce; USD/CHF has finally accepted a fresh record low for now by 0.9300, and could be in the process of carving out a major base; The Australian Dollar has been showing some relative weakness and AUD/USD is now threatening further retreat well below parity; and USD/CAD has once again rejected the notion of being comfortable below parity, with the market mounting and impressive recovery and once again looking to extend gains back towards 1.0200 initially over the coming days.

Looking ahead, US ADP employment (100k expected) is out at 13:30GMT, along with Canada industrial product (0.3% expected) and raw materials prices (2.0% expected). US ISM non-manufacturing (55.7 expected) is then out at 15:00GMT, with oil and gas inventory data shortly after at 15:30GMT. On the official circuit, Fed Hoenig is scheduled to speak at 18:00GMT. US equity futures and oil prices are tracking a good deal lower, while gold trades flat.

GRAPHIC REWIND

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 above 1.3400 should be used as formidable sell opportunities. Only a close back above 1.3500 negates bearish outlook.

USD/JPY:The latest setbacks have stalled out after the market had come under some intense pressure in the previous week to break back below the daily Ichimoku cloud and threaten a retest of the multi year lows from November 2010 just shy of 80.00. However, we have since seen a formidable bounce by the 78.6% fib retrace off of the November-December move and this could warn that the market is once again poised for a rally. Look for a break and close back above the top of the Ichimoku cloud by 83.00 to confirm.

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 in neutral territory so we would not rule out the possibility for more of a bounce towards the 1.5700 area 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: The latest price action is certainly concerning for our basing outlook with the market dropping to fresh record lows by 0.9300 thus far. However, cyclical studies are showing oversold and any additional declines below 0.9300 are not seen as sustainable. Our strategy is to continue to take shots at buying, but ultimately, look for a break and close back above 0.9650 to confirm short-term reversal and relieve immediate downside pressures.

7:42 AM | 0 comments | Read More

Reversal of Fortunes in the FX Market; Sterling Emerges as Top Performer

FUNDYS

While there haven’t been too many developments on the fundamental end of things over the past few hours, we have been noticing interesting price action in some of the currencies. Markets that had been the standout outperformers in the previous week’s lightened holiday trade, have been suffering in the early year, with Aussie, Yen and Swissie all showing some relative weakness in on Tuesday. Conversely, a market that had been showing relative weakness is now the star performer. Price action in the Euro has taken a backseat for now, although the market has been able to brush off talk of another downgrade to Greece, slightly weaker German employment data, and headlines of a potential Eur45B government bond redemption, to mount a rally back above 1.3400. Broader macro flows and a higher than expected Eurozone CPI estimate seem to be more influential at the moment.

Relative Performance Versus USD Tuesday (As of 11:20GMT)

1. STERLING+0.87%
2. EURO +0.26%
3. CAD+0.08%
4. YEN-0.41%
5. KIWI-0.59%
6. AUSSIE-0.70%
7. SWISSIE-1.15%

Although the Pound is still trading within familiar ranges against the buck, the single currency has been on fire today (price action most evident in Gbp/Chf and Gbp/Aud), to easily trade back above 1.5600 thus far. First and foremost, a much better than expected manufacturing PMI has been seen as a major force behind some of the latest buying. Also seen helping to bolster the UK currency has been some positive flows on the back of leveraged, semi-official and model accounts, along with some positive M&A related flows. Finally, and FT survey has concluded that UK austerity measures are unlikely to send the local economy into a double dip recession.

As we look at the other side of the coin, there certainly can be some fundamental justification for the Aussie weakness on Tuesday. The Australian AIG performance of manufacturing index fell by 1.3 points to 46.3 in December, to put in the fourth consecutive month below the critical 50 boom-bust level. This has opened a major round of profit taking on long positions, with the currency backing off from post-float record highs by 1.0260. Tuesday’s early break below Monday’s low is technically significant, with the market ending a sequence of consecutive daily higher lows.

Meanwhile, technicals have played somewhat of a formidable role in the latest Usd/Jpy bounce, with the market stalling out by the 81.00 area last week, which loosely coincides with the 78.6% fib retracement off of the major November-December 2010 move. While at this point it is too early to gauge whether this latest recovery has any teeth, we would not rule out this possibility and would look for further bullish confirmation on a break back above the daily Ichimoku cloud which comes in by 83.00.

Although local fundamentals are less influential when talking about price action in the more macro weighted Swiss Franc, the weaker than expected PMIs out of Switzerland on Monday have not been helping to advance the Franc to additional record highs. But it is probably the improved global risk appetite and solid demand for global equities that have really helped to open some across the board weakness in the single currency over the past session. This is also an overextended market that is very much exposed to some corrective adjustments at a minimum.

As far as the Greenback is concerned, we continue to remain constructive with the outlook. Economic data is really starting to show signs of legitimate recovery and Monday’s strong ISM manufacturing showing is representative of this fact. Additionally, whatever the timing, Fed policy has only one way to go from here, and at some point, the shift to a less accommodative bias will ultimately benefit the US Dollar. Comments from Fed Mishkin who says that “Q3 in unlikely” and that the US economy is “stronger right now” help to strengthen our core USD bullish outlook.

Looking ahead, US factory orders (-0.2% expected) are due at 15:00GMT, followed by the release of the more highly anticipated December FOMC Minutes at 19:00GMT. Domestic vehicle sales (9.2M expected) and total vehicle sales (12.3M expected) cap things off for the day at 22:00GMT. Interestingly, US equity futures and oil prices are well bid while gold is being sold.

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 above 1.3400 should be used as formidable sell opportunities. Only a close back above 1.3500 negates bearish outlook. Monday’s break back below Friday’s low sets up a potential bearish reversal day and encourages bias.

USD/JPY:The latest setbacks have stalled out after the market had come under some intense pressure in the previous week to break back below the daily Ichimoku cloud and threaten a retest of the multi year lows from November 2010 just shy of 80.00. However, we have since seen a formidable bounce by the 78.6% fib retrace off of the November-December move and this could warn that the market is once again poised for a rally. Look for a break and close back above the top of the Ichimoku cloud by 83.00 to confirm.

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 in the process of unwinding from oversold levels, so we would not rule out the possibility for more of a bounce towards the 1.5700 area 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. But the latest topside failure ahead of 1.5700 is encouraging.

USD/CHF: The latest price action is certainly concerning for our basing outlook with the market dropping to fresh record lows by 0.9300 thus far. However, cyclical studies are showing oversold and any additional declines below 0.9300 are not seen as sustainable. Our strategy is to continue to take shots at buying, but ultimately, look for a break and close back above 0.9400 to confirm short-term reversal and relieve immediate downside pressures.

6:43 AM | 0 comments | Read More

Australian Speculative Long Positions Nearing Extreme

Latest CFTC Release dated December 28, 2010:

Week (Data for Tuesdays)	13 Week Index (Current)	13 Week Index (Previous)
US Dollar	25	42
Euro	0	8
British Pound	0	8
Australian Dollar	83	75
NZ Dollar	8	0
Japanese Yen	42	0
Canadian Dollar	67	33
Swiss Franc	83	42

The COT Index is the percentile of the difference between net speculative positioning and net commercial positioning measured over a specific number of weeks (13). A reading close to 0 is bearish if the currency in question has reversed from a uptrend and is bullish if the currency has been declining for a significant amount of time. A reading close to 100 is bullish if the currency in question has reversed from a downtrend and is bearish if the currency has been rallying for a significant amount of time. On the charts below, blue painted bars indicate that non-commercial (speculative) traders are long and commercials are short. Red painted bars indicate that non-commercial (speculative) traders are short and commercials are long. Non commercials are on the correct side of the trend until the turn.

Readings of 95 and higher as well as 5 and lower are in boldfaced red type to indicate potential market extremes. For example, an increasing index is bullish until the index is extreme (near 100), at which time the risk of a reversal or pause in the trend increases.

6:58 PM | 0 comments | Read More

Snapshot Overview of Overall FX Market Price Action in Final Days of 2010

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)

1. KIWI+0.75%
2. AUSSIE +0.38%
3. YEN+0.32%
4. CAD+0.25%
5. STERLING+0.15%
6. EURO+0.05%
7. 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.

5:51 AM | 0 comments | Read More

Franc Gains Accelerate in Tuesday Trade But Well Offered At Current Levels

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)

1. SWISSIE+1.13%
2. YEN +0.64%
3. AUSSIE+0.49%
4. EURO+0.47%
5. KIWI+0.41%
6. CAD+0.28%
7. 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.

2:34 AM | 0 comments | Read More

Currencies All Poised to Settle In As Holiday Finally Upon Us

If you haven’t already, it’s time to go enjoy the family and friends, because absolutely nothing even close to significant should happen from here into the close on Friday, and if anything does happen, you probably won’t want to be involved. To go over developments in recent trade, the Yen has made a bit of a comeback over the past 24 hours, although with the market still holding above 82.00, it is hard to say that we have really gone anywhere at all, with the broader multi-day consolidation still intact. Meanwhile the Swiss Franc has finally relented a bit, after Usd/Chf failed to take out the 0.9460 record lows from October. There has been no confirmation of any central bank activity, but the resulting price action has set up bullish outside days in Usd/Chf and Gbp/Chf (off of record lows), and a bullish reversal day in Eur/Chf (also off of record lows).

Despite recent efforts from the European Central Bank to restore confidence in the Eurozone, with some of these beleaguered local economies’ bond yields remaining elevated, the market is still not showing too much confidence. Additionally, the move by the Fed to extend Dollar supply to Europe is also a good sign that liquidity risk has not softened. As such, we continue to risks for additional Euro weakness over the coming days, with a retest and break below the recent lows by 1.2970 very realistic. The Euro has however been somewhat supported in recent trade following S&P’s move to affirm France’s AAA rating with a stable outlook.

The Australian Dollar has given up some of its relative strength over the past day, but on the whole, remains very well bid. However, we continue to hold the opinion that this is a currency which has outdone itself and should be due for a major across the board pullback over the coming year. Our favorite trade for 2011 is Long EUR/AUD, with the cross trading by multi-year lows, technically violently oversold and screaming for a major trend reversal.

Back to the topic of the Yen, according to a recent Reuters report, Japan is expected to raise its FX intervention fund limit by an additional 5Trln to 150Trl Yen total into the next fiscal year which begins in April. While the move by no means confirms that additional action will be taken, it certainly sends some form of a message to market participants that they should be careful of buying Yen going forward.

If we take a look at the Eur/Usd monthly chart, it looks as though the market will close out the year right around levels that were seen at the start of 2009. A very significant bearish outside month in November of 2010 now likely signals a longer-term lower top by 1.4285, with a break back below the 2010 low at 1.1880 to confirm the lower top and open some fresh downside. As such, we still see plenty of downside risk for the Euro over the coming months with a move back below 1.2000 seen as a very realistic possibility. Ultimately, a break back above 1.4285 will now be required to negate the longer-term bearish structure.

There is nothing on the economic calendar for Friday and we would expect to see all currencies consolidate by their respective closing levels on Thursday. Just an additional heads up that The Australian and New Zealand markets are closed on Monday and Tuesday for Christmas break. We wish each and every one of you a very special, happy, meaningful, and healthy holiday, and very much look forward to the year ahead. Thank you all so much for your continued support.

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, 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 on 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.

6:16 AM | 0 comments | Read More

EUR/AUD Buy Recommendation Issued @1.3000; Stop 1.2880

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)

1. YEN+0.71%
2. KIWI +0.70%
3. AUSSIE+0.56%
4. EURO+0.05%
5. STERLING+0.01%
6. CAD-0.12%
7. 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.

3:19 AM | 0 comments | Read More

EUR/CHF Buy Recommendation Issued @1.2460; Stop 1.2360

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)

1. SWISSIE+0.51%
2. EURO +0.34%
3. CAD+0.33%
4. YEN+0.21%
5. AUSSIE+0.06%
6. KIWI+0.01%
7. 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.

5:07 AM | 0 comments | Read More

Euro Sees Whipsaw Action in Tuesday Trade But Remains Well Offered

FUNDYS

Although there hasn’t been a lot in the way of any form of fundamental prop for the Euro over the past few days, the single currency is managing to find some relative bids into Tuesday on the back of the news out of China that the vice-premier has pledged to provide concrete action to help the EU with its debt problems. These comments have come out of the EU-China summit in Beijing and are also helping to bolster risk appetite across the board. Meanwhile, geopolitical tensions from Monday have now eased after North Korea said it would not take any action following South Korea’s firing drills in contested territory.

Relative Performance Versus USD Tuesday (As of 10:45GMT)

1. KIWI+0.43%
2. SWISSIE +0.43%
3. AUSSIE+0.24%
4. EURO+0.21%
5. YEN+0.11%
6. CAD+0.01%
7. STERLING-0.05%

However, Eurozone debt problems are far from gone, and any relief for the currency could very well be short-lived with overall bearish sentiment in the region and a slew of ratings downgrades proving too tough to ignore. Moody’s has been on a rampage, most recently putting Portugal’s ratings on review for a possible downgrade. This follows Monday’s headlines that the rating agency was placing Spanish banks on review, and speculation of a potential French downgrade. It is worth noting that Spanish T-Bill auction results came in solid considering the current wave of Eurozone uncertainty.

Elsewhere, the Bank of Japan ended its 2-day policy meeting today, and although there had been signs of further deterioration within the economy, there were also enough positive signs to at least justify keeping the central bank’s policy and outlook unchanged as was widely expected. Usd/Jpy remains locked in a tight consolidation just over the daily Ichimoku cloud, and needs to break and close back above 84.50 to open a fresh upside extension.

Meanwhile, after outperforming on Monday, we have seen some mild relative underperformance in the Australian Dollar (at least against the Kiwi and Swissie) in Tuesday trade, after the RBA coming out with an on the whole slightly dovish Minutes, after saying that rates were “mildly restrictive” but that policy was “appropriate.” The RBA cited concerns over the escalating Eurozone debt situation, but also somewhat offset these concerns on an expectation for stronger growth in China and India, as well as an improvement in the pace of US economic recovery. On the domestic front, the RBA mentioned that there was some room for worry with constrained household consumption and borrowing. Still, Aussie does track higher against the buck on the day.

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.

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.

On the data front, the only key release in Asia came from UK GfK consumer confidence which managed to come in slightly better than expected, while at the same time matching the previous print. But in the end, the data offered little room for inspiration and still remained at depressed levels. In Europe, UK public finances and public sector net borrowing numbers were very weak, and market participants could not ignore this data series which weighed heavily on the Pound (weakest major currency on day). Swiss trade balance and money supply numbers hardly factored into price action with flow related demand for the Franc dominating price action.

Looking ahead, the US economic calendar is all but empty with Canada data taking center stage as CPI (0.3% expected) is released at 12:00GMT, followed by retail sales (0.5% expected) at 13:30GMT. US equity futures are tracking moderately higher on the day thus far, while commodities have given back some of their overnight gains with oil slightly higher and gold trading flat.

GRAPHIC REWIND

TECHS

EUR/USD: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 now 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 Swiss real money account leading sellers that pushed Eur/Chf to fresh record lows. Asian Central Banks seen on the bid in Eur/Usd.

6:26 AM | 0 comments | Read More