EUR/USD: Sell orders capping near 1.3115
Those sell orders I mentioned earlier at 1.3115 have done the job so far and are capping for now.
Little wonder that Nowotny says that the market over-reacted to ECB comments; as Draghi said more or less the same thing regarding 'technical readiness' a few meetings ago! The market never seems to get any smarter.
Cable: More likely to go down rather than up in short-term
Weak trailing stops are building just below the market and one of my contacts in HK, who's been very accurate in recent months on the GBP, suggests that there is more risk to the downside pre-NFP.
Stops are below 1.5490 and again below 1.5460.
EUR/USD orders updated
- Bids reported near 1.3030 but stops also directly below 1.3020.
- Sovereign buyers, including China, expected again near 1.2950/75.
- Very solid selling interest also reported 1.3105/15.
RBA will cut by 25bps next week, maybe even 50bps
Australian rates are at 3% in a world where the ECB is considering negative rates and whilst US rates might rise, it probably won't happen in this decade! Commodity prices are falling, China is consolidating and the AUD is way too high and killing important industries like tourism.
The RBA needs to cut rates and cut them fast and if they have any market nous, they should cut by 50bps next week, drive the AUD/USD back towards 1.0000.
Levels to watch in the FX market, Friday May 3rd
- Remember that China and Japan are closed again today so it should be quiet in Asia.
- AUD/USD bids at 1.0220/25 continue to holds the bears at bay (I expect these bids to cancel before NFP).
- EUR/USD has solid technical support near the overnight lows at 1.3035.
- USD/JPY barrier protection ahead of 97.00 continues to dominate this pair.
- EUR/CHF is testing support levels near 1.2200.
AUD/USD support holds the first test
1.0225 has been tested quite seriously, as has the AUD/NZD support at 1.2050, and both have held on first time of asking.
(Edit: Yet more bounce now being seen in the AUD against the NZD and the EUR; looks like those are very serious bids at 1.0220/25!)
AUD/NZD: Closing in on recent lows
I had thought that this pair might show some inclination to form a base near 1.2100 but that's looking increasingly unlikely. The cross has been unable to reclaim previous lows at 1.2145 and is now closing in on testing recent lows at 1.2050.
In other words, if this level breaks and you think the AUD/USD is basing out, that might be the opportunity to buy NZD/USD?
ECB: Overwhelming expectation of a 25bps refi rate cut
All 6 major bank reports that I've read today expect the ECB to cut the refi rate to 0.5% but leave the discount rate unchanged at 0.0%.
If this happens as expected, I'd expect to see very little change in the EUR/USD, possibly 30 pips either way depending on short-term positioning in the market at the time.
One point we should note is the continued diverging approaches to QE by the Fed and the ECB, and if nothing changes on this front at today's meeting, we may see some macro buyers return to the EUR/USD market.
AUD/USD: Solid buying interest still reported near 1.0225
I'm hearing from a few local banks that the corporate and Sovereign bids are still in place near 1.0225. Even though the AUD still looks very heavy, especially on the crosses, there doesn't seem to be a lot of value in chasing it lower from current levels.
USD/JPY: Barrier defence still in play at 97.00
The market's biggest player is reportedly defending a 97.00/104.00 double-no-touch option and prices are edging ever closer to the big showdown. I wouldn't be surprised if it's trading 97.02/03, your amount either side, in a few hours time! The question then will be, who blinks first?
My money is on the giant Panda and I'm long with a stop below 96.80.
Interesting that, after a very quiet period over the last 12 months, the same player was a very noted buyer of EUR/USD below 1.3000 last week.
AUD weakness gathers fresh momentum
- EUR/AUD has broken out of its recent consolidation range and is now targeting 1.2950 (chart in members).
- AUD/JPY has broken its interim trend-line and there's no strong support until 99.00.
- AUD/CHF saw some very heavy selling overnight and is closing below recent daily lows at .9545.
- China PMI later today will certainly add to volatility.
GBP: Could surprise on the crosses; GBP/NZD for the mad contrarians
- The market (myself included) had gotten very bearish on cable in particular and I have the feeling that GBP shorts are still running at high levels.
- I'm no expert in fixed income markets, but surely Gilts are looking more attractive than many of the peripheral EZ markets?
- The GBP has been bashed against exotics like the Kiwi and is trading close to record lows. All you mad contrarians out there should watch the developing inverted H&S on the daily chart.
- Cable has decent technical resistance at 15580 which should be tough to overcome in the short term.
CHF: Doesn't seem to want to fall!
- The fall in Gold led me to expect another sell-off in the CHF but this hasn't eventuated.
- EUR/CHF has a base in place from the SNB but is unable to sustain any rally, and this also despite big leads from pairs like EUR/JPY.
- Market chatter suggests that global asset managers are super-long of Swiss assets but if they are they don't seem to be in any rush to sell.
- I'm still long of USD/CHF and will stick with it for another while but my patience is being seriously tested :(
AUD/USD: I don't care, I'm staying bearish for now
- Demand for commodities is easing and prices are falling.
- Precious metal prices also look to have broken lower.
- The RBA is likely to cut rates again by 25 bps in June.
- Technicals can be basically forgotten in sideways, ranging markets.
- Some of the crosses like EUR/AUD and AUD/NZD look to have turned bearish on the AUD.
- Same applies to US economy as below; overall improvement but Fed policies are still a drag on the USD.
- The market is structurally long and I can't help but feel that 1.04 is simply not the level at which to be long!
- I'm sticking firmly to my guns here that we will see 95 cents before new highs at 1.11.
EUR/USD: I'm struggling to find reasons not to be bearish
- After the debacle with Cypriot bank accounts, I have even less confidence in the EZ to get things done right.
- Unemployment is a serious issue across the Zone and growth is non-existent.
- The US economy has been picking up in recent quarters but Fed QE policy is still a concern for USD bulls.
- The technical picture is telling me nothing, with range-trading imprinted across most time-frames.
- The crosses look mixed; EUR/AUD for one still looks technically bullish but EUR/GBP has turned soft. EUR/JPY has come a long way in a short time and the lack of bullish momentum in EUR/CHF is definitely a mystery.
Conclusion: I'd be waiting for exhaustive stop-driven spikes to sell into and it may well be that we are currently experiencing just such a spike (but a break above 1.3200 will undoubtedly set off more stops).
USD/JPY: In consolidating markets, prices should revert towards the mean
- Possible double-top on the daily chart at 100.00, and this is the key topside level.
- Short-term support is at 97.00, with China reportedly protecting a dnt option structure.
- Vital support is at the potential neckline which is at 95.80, where the bullish trend-line and 55-day SMA also currently sit.
- When markets are consolidating, prices should revert toward the mean (100-period MA) so either prices go sideways allowing the MA to catch up or prices fall to meet the line (currently just below 93.00).
- Short-term charts are currently in modest down-trend but much will depend on how aggressively China wants to defend this 97.00 level.
Conclusion: I don't like betting against China but I also think that we are in for a period of extended consolidation. The big levels to watch are 95.80, 97.00, and 100.00; I think we should consider positioning on the approach to these levels with tight stops below.
Trade: I've taken a small USD/JPY long position at 97.30 with a 50 pip stop. If 97.00 breaks then I will look to sell rallies for a test of 95.80.