Going with the trend is the new contrarian play!
Interesting to read some comments from our hedge fund insider @FXWW888 who says that most traders he's spoken with this morning are positioned short USD as they believe that all other traders are overly long USD!
Major banks maintaining their bullish USD stance
I've just read through the weekend reports from a few of the major banks and they are all still solidly bullish on the USD. They report solid USD demand across all majors and emerging markets and they see no reason for this to change anytime soon. One bank notes that EUR demand on dips has been quite large and that USD bulls might find better value elsewhere.
Rising US rates giving USD/JPY a boost
The historically strong correlation between US interest rates and USD/JPY hasn't been all that reliable in recent months. 10-year rates have risen by 75bps whilst USD/JPY has been volatile and choppy around 100.00. In fact it was the USD/JPY seemingly leading US rates rather than the other way around.
Friday's NFP and the srong impact on both US rates and on USD/JPY is being seen by some analysts as a sign that the correlation is back in place. I think I'd like to see a bit more evidence first.
Whilst on US rates, the sharp rise could well impact on any Fed tapering decision. The US economic recovery is being led by a sharp rise in the property market and if interest rates rise and the Fed stops funding the mortgage markets, then this fledgling recovery could be impacted?
AUD/USD: Adding small longs near .9050
- AUD/NZD might be forming a basing pattern (see chart).
- Recent lows in AUD/USD at .9035 have held for a second time.
- Large buyers are being reported just ahead of .9000 so we may have a barrier in play.
- The AUD has managed to defend important levels on a weekly basis against the EUR and the JPY.
I'm adding small AUD/USD longs near .9050 but will keep a tight stop on things.
Big support levels to watch in early trade
It's been a quiet start to the interbank trading week but there are some levels worth watching closely.
- EUR/USD: Weekly lows near 1.2800.
- Cable; Trend lows at 1.4830.
- AUD/USD: Recent lows at .9035.
- AUD/NZD: Possible double-bottom neckline at 1.1725.
USD/JPY: Still bullish ahead of BOJ on Thursday
The market really wants to buy this pair given the fundamental outlook but we can still expect occasional sharp sell-offs as the market is already quite long. Bulls will be hoping that the BOJ statement on Thursday contains more easing measures.
I'd expect the market to stay moderately bullish early in the week with all the usual guesswork and speculation and the bears may have their day in the sun towards the end of the week, after the event.
EUR crosses: Modest bullish tendencies
- EUR/GBP close above previously strong resistance at .8600 is a bullish indicator.
- EUR/JPY has been choppy around 130.00 but the trend is still bullish and it's up to the bears to wrest back control.
- EUR/CHF still looks liable to sharp moves higher but the professional speculative market is quite long already.
No clear view coming out of the EUR crosses at the moment so stick to swing/range trading mode.
AUD/USD: Still bearish but crosses looking friendlier
- AUD/NZD: Possible double-bottom with neckline at 1.1725 (see chart).
- EUR/AUD: Another weekly close below important 1.4400 resistance (see chart).
- AUD/USD: Bear trend still in total control and weak weekly close does nothing to dampen the bears enthusiasm.
The market wants to sell this pair still but I am sticking strongly to the view that this is a short-term fad which will soon run out of momentum. But I'm not willing to make any large bets against the trend just yet.
EUR/USD: Weekly preview July 7th
- This pair has been in range trading mode for an extended period and is currently sitting right on weekly trendline support (see chart).
- The market has turned irrationally bullish on the USD and with EUR/USD positioning at relatively low levels, there is still scope for further falls.
- July and August are the main holiday months in Europe and North America and we seldom see any big trends beginning at this time of the year.
The market wants to buy the USD and we must respect this sentiment but I don't like the risk-reward in selling near 1.2800. Look to the EUR crosses for better trading opportunities.
GBP/JPY: On the move early, could see 148.50
Like I mentioned below, it's the sort of market to look for swing trade opportunities in pairs like GBP/JPY, I just didn't expect to see any big moves until the NFP! I'd expect to see stops below 149.30 (see chart) so maybe sticking a 'silly' bid in at 148.50 in expectation of a spike back towards 150.00 might be the way to go?
Look for swing trades on NFP lottery Friday
I've just laboriously worked my way through about 25 different pairs, all on the short-term charts, and I couldn't come up with one decent looking trade possibility. Those that look bearish are already oversold and those that are overbought are in bull mode. It also seems that any pair that is range trading is near to the middle of its range.
As we all know, there are times when the markets are simply very hard to read.
Pick a volatile pair like GBP/JPY and look for decent intraday swings, that's the best strategy I can come up with at the moment.
EUR positioning at relatively neutral levels overall
I'm really not sure what to make of the EUR/USD overall, and this is the one pair which is unsettling my overall view of the market. Prime broker reports suggest that overall EUR positioning is relatively neutral, with bigger players sitting on long EUR/JPY and EUR/AUD positions but the overall market tending to be short EUR/USD.
This had me thinking that EUR/USD would tend to trade sideways in a broad 1.28/1.35 sideways range whilst the crosses would readjust lower though higher AUD/USD, lower USD/JPY etc. But, if the market were to really get bearish EUR it still has plenty of scope to build positions and this for me is the big unknown factor.
AUD/USD outlook: Heavy adjustments on the crosses still driving force
- AUD/NZD still looks heavy whilst below 1.1750.
- AUD/USD has been heavy below .9250 over the last week but psychological support at .9000 will be tough to break initially.
- GBP/AUD and EUR/AUD profit taking from macro funds visible over last few days.
- AUD/JPY forming a base above 90.00.
Mixed signals suggests more range trading ahead with obvious parameters at .9000/.9250.
USD/JPY outlook: Always whippy on NFP day
- The fundamental picture for USD/JPY remains quite bullish and market sentiment is similarly so.
- Overall positioning remains long but more pronounced in the crosses.
- Macros have been selling out of longer-term EUR/JPY longs.
- AUD/JPY support at 89.50 is looking increasingly strong.
Conclusion: We can expect to see every level on multiple occasions on NFP day, as this pair is the bellweather for USD/Risk sentiment. Starting the day with a bullish tone but don't be surprised if we see either edge of 99.50/101.00.
EUR/USD outlook, Friday July 5th; Range trade with bearish bias
- If medium-term consolidation is to continue then support levels near 1.2800 should hold (see chart).
- Short-term EUR/USD trend is bearish with solid resistance now at 1.3030 (see chart).
- EUR/JPY is bit directionless at the moment but big macros have been selling rallies.
- EUR/GBP is still capped below .8600.
- EUR/AUD looks like it will again have a weekly close below 1.4400 and with macros also booking profits in this cross, a retracment phase towards 1.3500 looks possible (see chart).
Conclusion: The technical picture suggests a 1.2800/1.3025 consolidation range and the crosses are suggesting a bearish bias.
NZD continues to find plenty of buyers
- Despite the bounce in the AUD, AUD/NZD has remained below 1.1700, showing the strength of the NZD move.
- NZD/JPY is back above 78.00 and targeting a first Fibo at 79.00 (see chart).
- The NZD/USD rally has stalled at recent highs near .7860 (see chart).
Once again the crosses provide plenty of volatility
The danger of making big calls is that you look like a fool for a while, but I'm well used to that by now. GBP got smacked after a dovish MPC and pairs like GBP/NZD and GBP/AUD had the classic 'scissors' cross move.
New York was closed last night for a holiday and tonights NFP is the big event on the economic calendar.
I still like buying dips in NZD/USD as the logical trade during the Asian session and volatility will probably come from USD/JPY, but which way?
Good luck and TGIF.
Cable: Why its headed back toward 2.10
- AUD/USD was toppy at 1.07 but is oversold at .90 and will retrace from here back towards 1.00, BUT
- AUD/NZD is bearish and headed below 1.12 which puts NZD/USD near .90, BUT
- EUR/NZD is forming a long-term basing formation and will return to 1.80, putting EUR/USD at 1.60, BUT
- EUR/GBP is overvalued on a long-term perspective and is headed back towards 'fairer value' at .75 ERGO
- Cable will be back trading above 2.10 within the next 18 months.
It's pretty easy, this FX trading :) Remember when it gets there that you heard it here first :)
I am being partially serious. The crosses in the FX market are out of alignment and something is going to have to happen to get them back to more 'neutral' levels.