EUR/USD: Cheap trade with stop below 1.1750
Today's European Court of Justice (ECJ) opinion will have crucial implications for government bond purchases by the ECB and naturally will impact on EUR sentiment. With positioning at close-to-extreme levels, it might be a day for the contrarians?
Two ways to play this I guess, buy here at 1.1770 with a very tight stop below 1.1750 (where it looks like there is option activity). Or wait and see if the presumed stops below 1.1750 get triggered in typical early-Asian-market fashion and then buy into the exhaustive dip. I haven't really been trading EUR/USD recently so no strong view.
USD/JPY: Playing from short side again today
The market stalled in NY trade at a technical support level near 117.55 and with fundamentals still bullish alongside the trend, any stalling will have the market immediately thinking re-bound. But these rebounds will be shallow in my opinion and further heavy option-related stops down through 117.50 and 117.00 will surely be targeted, just like yesterday sub-118.00.
I'm looking to sell into rallies towards 118.20 intraday with targets sub-117.00 later today.
USD/JPY: Selling rallies preferred in short-term
My sources tell me that option players are very heavily skewed in USD/JPY and that hedges will need to be increased as we break fresh ground on the downside. Today's break below 118.00 saw the first batch of sell orders triggered and there could be much more to come. I would not be at all surprised to see EUR/JPY trading back towards 135.00 and USD/JPY towards 115.00 in coming days.
This has nothing to do with fundamentals and everything to do with market positioning.
AUD/USD: Pick a 200 pip range for this week
The downtrend in AUD/USD is quite strong but it's already come a long way and the AUD looks reasonably strong on the crosses especially against the European currencies. That sounds like a recipe for range trading and I'd use this mornings opening levels at .8200 as a mid-point for the week.
There is short-term resistance at .8225 which might cap prices initially and any dips towards .8150 on the day will meet with grateful buyers. Outside of that I'd look to play .81/.83 and if I were forced to choose, I'd go with a cautious bullish bias.
Important decisions looming this week for ECB QE
From Barclays research:
The European Court of Justice (ECJ) opinion will have crucial implications for government bond purchases by the ECB and the outlook for the euro. On Wednesday, the Advocate General of the ECJ will publish his opinions on a list of questions raised by the German Constitutional Court (GCC) regarding the Outright Monetary Transactions (OMT) launched in September 2012. The ECJ ruling, which often follows the views of its Advocate General, could have adverse impacts on the effectiveness and the design of broad-based ECB government bond purchases. In particular, the imposition of seniority for the ECB on its holdings of EGBs would in our view materially undermine the impact of the QE as it squeezes private creditors out. Negative impacts may also come from other aspects, such as quantitative limits for government bond purchases.
AUD/USD: Heavy interest both sides of market
- Large bids are being reported towards .8000 which suggests significant optionality. There will be stops below there but local banks here in Australia seem to be of the opinion that these levels will be tough to breach.
- Prime brokers are not reporting many topside trailing stops, which is interesting heading into the NFP.
Looks to me that we could get some sideways trading between .8000/.8150 in coming sessions and if you really want to buy the AUD, then preferably on the crosses.
AUD/USD: Heavy interest both sides of market
- Large bids are being reported towards .8000 which suggests significant optionality. There will be stops below there but local banks here in Australia seem to be of the opinion that these levels will be tough to breach.
- Prime brokers are not reporting many topside trailing stops, which is interesting heading into the NFP.
Looks to me that we could get some sideways trading between .8000/.8150 in coming sessions and if you really want to buy the AUD, then preferably on the crosses.
GBP looking fragile across the board
A market always looks like it's most bearish at the bottom but it would be a brave person who would go limit long GBP right now.
- EUR/GBP: Despite a very bearish EUR, this pair has started to bounce again off major technical support at .7750 and perhaps the market is simply short enough already? All shorts are relying on the SNB to sanitise their intervention (sell EUR/GBP to offset EUR/CHF purchases) but if this doesn't happen then the squeeze starts.
- GBP/JPY: Another heavily positioned pair which is currently being seriously tested after 190 resistance held firm again.
- Cable: Trading bearishly on an intraday basis and the fact that we close today near daily lows tells us a lot. I'm still looking for a good entry level but I'll probably get cheaper levels going by recent price action.
- GBP/CAD has been another favourite macro position and even though its still in consolidation, a test of 1.7530 again wouldn't surprise?
Good luck++
Oil, Copper fall heavily; likely to influence AUD/JPY in particular
Crude oil prices dipped below $50/bbl for the first time in over 5 years and copper prices also fell heavily during NY trade. This sentiment is likely to carry over into the Asian market and pairs like AUD/JPY and CAD/JPY might be vulnerable to some increasing downward pressure.
Oil, Copper fall heavily; likely to influence AUD/JPY in particular
Crude oil prices dipped below $50/bbl for the first time in over 5 years and copper prices also fell heavily during NY trade. This sentiment is likely to carry over into the Asian market and pairs like AUD/JPY and CAD/JPY might be vulnerable to some increasing downward pressure.
USD/JPY: Hefty profit taking to start the year
Prime brokers are reporting some heavy profit taking in USD/JPY overnight which had a knock-on effect on other speculative positions such as the short EUR trade.
- Technical resistance at 120.70 in USD/JPY continued to prove very solid and this encouraged IMM accounts in particular to start booking profits. I've got no view on USD/JPY at the moment.
- Modest short-reduction was also reported in EUR/GBP although movement there was in a tight 30 pip range.
Macro players continue to reduce long-term Gold shorts although the general consensus amongst the bigger banks seems to be that 1170/1230 will contain prices for the next week or so.
Looking to buy short-term dips in cable and AUD/USD
Obviously I missed the first opportunity earlier this morning to buy cable at 1.5100 but I'm sure there will be other opportunities. AUD/USD is still stalling ahead of presumed option-related bids at .8050 but a break of that should bring on a really swift move towards .8000.
The main move in the market is a EUR sell-off and I expect the EUR crosses to remain very heavy in the short-term, especially EUR/GBP and EUR/AUD imho. Therefore I quite like the look of buying any more exhaustive dips in cable and AUD/USD looking for a quick 150/200 pip pay-out.
Liquidity is poor so I'm looking for levels where there may be stops and putting my bids in 50/70 pips below there.
EUR liquidity- a taste of things to come
Liquidity was understandably poor this morning, as it always is on a Monday morning, but I think we can start getting used to these nasty gaps. There will be many more comments on Greece EU membership, EZ QE etc and with market-makers changing their pricing techniques we can expect plenty more 'gappy' markets.
Selling rallies in the EUR crosses is still the way to go, especially in the next 2 weeks as we approach the ECB meeting and the Greek election. I'd also definitely avoid EUR/CHF, way too risky.
EUR flows: Speculators short but big players still selling
Just catching up on interbank research after a 2 week break and the following factors are being consistently reported:
- Prime Brokers are reporting heavy speculative short positions amongst professional players, especially through the options market;
- Overall short positioning in the spot market is at significant levels;
- Net Fixed Income flows have been very EUR-negative and that's likely to remain the case;
- Reserve manager currency allocations seem to be signalling a shift away from the EUR.
The latter two can lead to very heavy flows so selling rallies is still the obvious play in my view.
The crosses will be less volatile than EUR/USD, with EUR/CAD and EUR/NZD offering some decent longer-term trade set-ups.
