EUR/USD: Professional market still looking to sell despite Greek debt extension
Most of the research and trade strategies that I'm reading this morning from banks and professional traders shows that nothing much has changed despite the 4-month debt extension. Traders are still very much in sell-rally mode.
The big levels to watch topside would seem to be around 1.1550, as a break above that will have many re-assessing their medium-term strategies. On a shorter-term scale, I'd expect to see plenty of stops above 1.1460 based on what I'm reading.
AUD/USD: Still long, hoping for a break above .7850/70 resistance
It looks like there are still plenty of offers in the AUD/USD ahead of .7850 and we could be in for longer periods of sideways consolidation. I'm still running my long, bottom-picking, strategy and I need a break and hold above .7870 before I will consider elevating risk levels.
There is nothing of note on today's economic calendar and the Chinese financial market remains closed until Wednesday.
Big Prime Brokers issue liquidity warnings for Monday morning
Liquidity gaps will become an increasing issue for the FX market and we are seeing/hearing increasing instances of big Prime Brokers warning their clients that such events could occur.
This is part of an email which Barclays sent out to their client base of hedge funds, corporates, banks and retail brokers:
As a result of current uncertainty surrounding the ongoing position of Greece in the Euro Zone, there is a chance of dislocation and highly illiquid conditions in the EUR FX market. Whilst Disrupted Market Conditions could arise at any time, there is, in particular, a risk of FX markets opening on Monday morning at a significantly different level from the Friday night close.
I'm also hearing through the chatroom network that "a few of the retail shops hiked margins pre weekend due to the same reasoning".
AUD/USD: .7850 still key short-term level topside
There is talk in the market of a short-term exotic option structure which is corralling prices between .7750 and .7850. This is easier to do during the Chinese New Year holiday when turnover is lower. I expect this structure to roll off today and I'm hoping that the first move will be higher. I'm still sitting on my long position and will initially reduce on any rallies towards .7950.
AUD/USD: Short-term exotic structure .7750/.7850
I'm not sure of the exact levels but the weight of bids towards .7750 and the weight of offers towards .7850 suggest that this is indeed a quick 100 pip play by one of the bigger players. All of the bigger interbank players were reporting similar order books yesterday.
One source tells me that this rolls off later today at NY cut.
Elsewhere on the order front, the same big European corporate was buying AUD/USD yesterday near .7770.
EUR/USD: Next wave of downward pressure about to develop
Germany and Greece remain poles apart when it comes to debt negotiations despite minor progress from time to time. EUR/USD has managed to get back onto the 1.14 handle on a number of occasions but the failure to break above 1.15 again is quite telling.
I'm also hearing reports out of New York (in the FXWW chatroom) that the market read too much into the FOMC minutes and that we can expect a more hawkish Yellen at the Humphrey Hawkins testimony.
Looks like the current phase has all the hallmarks of bearish consolidation. Selling rallies still the preferred play here.
USD bears not panicking yet post FOMC
The FOMC statement was more dovish than expected and while the bearish USD trend looks to be stalling against the GBP and the NZD, other major pairs like USD/JPY and EUR/USD remain in sideways consolidation. EUR/USD would need to break above 1.1550 and USD/JPY below 116.00 before the USD bulls will start getting really worried.
I'm sticking with my contrarian long AUD/USD position but with the AUD struggling against the GBP and NZD for now, I may have to remain very patient.
AUD/USD: Longs in play, hoping for a trend reversal
The AUD/USD has so far been unable to generate any sort of decent reversal momentum so this may well be another of my stubborn rather than clever trades! Who knows, we can only take positions as we see them and try and maximise the benefit. I added to my long play yesterday and will reduce again if we cannot sustain prices above .7750.
CAD/JPY: Quasi-oil trade in the FX market reverses sharply
Some weeks back, when oil started to crash, it took quite some time for the traditional oil play in the FX market to play catch-up. Much to my frustration, CAD/JPY hung around 105 for what seemed like an eternity before it eventually followed oil lower.
Yesterday we saw the CAD/JPY reversal pick up momentum quite sharply, in fact it led the way initially against the oil price. That tells me that profit-taking was the main factor at play. Many of the big macros will have been short this pair and if/when they start buying back, the market will move sharply.
Broad-based positional adjustment ahead of Chinese New Year holiday
The EUR started to ignore continued negative headlines and this has had an effect on itchy profit takers ahead of the Chinese New Year holiday which starts today. Chinese financial markets are shut for a week and other major centres like HK and Singapore will be closed on Thursday and Friday. Nobody likes to sit on positions for lengthy periods of time and I suspect that this is what happened to trades like Gold and CAD/JPY also.
Other favourite market trades like short EUR/GBP and short AUD/USD may also start to come under pressure if the domino effect takes hold.
The Japanese trade balance and NZ PPI are the main events on today's economic calendar.
EUR still looking soft as stand-off in EZ continues
Still no agreement between Greece and its creditors and any uncertainty will continue to weigh on the EUR in the short term. The Greek finance minister seemed willing to accept one type of proposal but any extension of the current bailout package seems unacceptable to the new Syriza negotiating team.
Some of the EUR crosses like EUR/JPY and EUR/AUD still look to have significant downside potential and that might be a good way of playing the bearish EUR card, in the shortish term at least.
The longer term term for the EUR is less clear. Whilst any shock of a Greek EZ exit would be immediately EUR bearish, the longer term implications would be quite bullish. That is presuming that there is no contagion into Spain, Italy etc. Any sign of that and the EUR will be totally friendless.
GBP opens firmer after weekend comments from MPC member
Bank of England Monetary Policy Committee member Martin Weale said Sunday
he expects interest rates in the UK to rise quicker than financial markets are
currently predicting.
Cable has traded to highs near 1.5430 in early interbank trade after closing last week near 1.5390.
AUD/USD: Watching intraday support at .7725
AUD/USD traders had been eyeing important technical support at .7725 and yesterday's break below, and the subsequent poor jobs data, would seem to have confirmed that more downside was ahead.
The Australasian market walks in this morning to see AUD/USD back above that technical level and there will be seeds of doubt sown amongst the big macro short positions.
If the market tests .7725 this morning and cannot break through, then I will look to add to my medium term (and currently under water) long position.
USD/JPY: Still firmly in consolidation range
USD/JPY has been stuck in a 116/121 range since early December and it looks likely to stay in this range for some time to come. There are conflicting positional forces at play, with USD/JPY players still very bullish and long but the EUR/JPY speculative market seems to be quite short and prone to short-squeezes; hence the lengthy period of uncertainty.
Waiting for range edges with tight stop-reverse policies in place seems like the sensible way to play USD/JPY.
AUD employment data today
The Reuters smart estimate would seem to suggest that we might get some worse than expected data.
AUD/USD: Basing formation negated
Contrarians had been hoping that an inverted H&S might develop on the short-term charts but the break below .7720 has now negated this possibility.
With USD/JPY having seemingly found a fresh lease of life, USD bulls might remain in the ascendency for a few more sessions which will bring the recent Aussie lows near .7625 back into view.
EUR/JPY: Short-squeeze developing
It's pretty hard to know which of these currencies we should be selling but in recent weeks the market has been overwhelmingly bearish on EUR/JPY. I'm also getting the sense that many big professional accounts are running short positions and that of course raises the spectre of a short-squeeze. There has been a lot of bad news for the EUR in recent sessions but no fresh lows, another sign that the market might be short enough.
All major pairs in consolidation mode: AUD/USD longs in play
Consolidation usually means continuation, which would be good news for the USD bulls. Ever the contrarian, I'm building an AUD/USD long position just in case the bottoming formation eventuates but I have a very tight strategy stop below .7700.
EUR/USD: Consolidating its powerful downmove between 1.12/1.15 and we'd really need to see a strong weekly close above the latter to endanger the bear trend. That said, there has been a lot of bearish news in the last week and the market has not been able to print fresh lows, perhaps a sign of some exhausted bears?
USD/JPY: This has been the classic range trade 116/119 for the last few weeks with some false breakouts in either direction unable to generate any momentum. Toss of a coin as to which way it breaks, but I guess the trend is your friend until proven wrong.
GBP/USD: 1.50/1.53 are the numbers to watch here and if EUR/USD breaks higher I expect the cable to out-perform.
AUD/USD: Like I mentioned, I see good risk-reward in the contrarian play at current levels especially as pairs like EUR/AUD would seem to have plenty of downside potential. .7725/.7860 are the levels I'm watching and I will build more aggressively if we get a daily close above .7875.