Europe squeezing weak intraday shorts
Looks like the European market isn't as bearish as Asia was and we are seeing a squeeze of intraday shorts in early trade. Perhaps the European market was more ready for these developments than the rest of us.
I'm done after a long day, I've put a tight stop on my EUR/JPY shorts above 122.80 and will rejoin the fray tomorrow. Good luck this session++
EUR/USD: Trailing stops building above 1.2930
Technical support is at 1.2870/75 and that is likely to attract some bids, with the liklihood of stop-loss sellers below there. A break back above 1.2930 will increase the chances of seeing a gap closure back towards Friday's close at 1.3050.
EUR/JPY: Back under pressure again
Hedge funds were selling USD/JPY earlier today as it approached 95.00 and liquidity was very poor according to interbank dealers. EUR/JPY is now back under pressure and earlier lows at 121.60 are back in view again. I will look to cover shorts on any spike lower towards 120.00 and then re-set on rallies back towards 122.50. Well you gotta have a plan.
Big players take stock before deciding on next step
When we get a big event like the Cypriot bank bail-out, the major banks click into overdrive. All of their main analysts will have been busy over the last 24 hours formulating their opinions and today they will have organised conference calls with all of their big clients. The same clients probably deal with multiple big banks and will have sat through multiple conference calls.
I've probably read close to 20 of these analysis pieces already today, and like I said earlier the main consensus is that there will be no run on European banks as the Cypriot situation is a unique one.
Nevertheless all of them are sounding notes of caution so the first instinct for many players will be to lower their EUR exposure and then reassess. This is why the EUR is remaining under steady selling pressure but not yet panicking. Next technical support in EUR/USD is a daily low near 1.2875.
EUR/USD: Still looking very soft
All of the major banks seem to be aligned, that we will not get any major fall-out from the events in Cyprus, but EUR/USD doesn't seem like it wants to rally at all. Unless I'm mistaken, the biggest rally we have seen at any stage today has been 30 pips and that to me is a market that wants to go lower; gap or no gap. Of course the big European players may walk in, have a laugh at the silly Asian market for selling off on this news, and promptly reverse everything.
I think a lot of big asset managers will have a long look at their portfolios today and really question whether they want to be in the EZ as opposed to the US.
Cable: Range-bound with rally-selling bias
With EUR/GBP now starting to retrace pretty significantly, cable should find plenty of support on dips in an already-short market. The trend is nevertheless still strongly bearish so selling rallies makes sense from that perspective.
I'd suggest a wide 1.4800/1.5250 range whilst these dynamics are in play. Initial support on the short-term charts is at 1.5070.
Liquidity remaining pretty poor
There are not many flows going through according to local dealers but even small amounts are managing to move the market as dealers avoid taking on any sizeable risk. EUR/JPY has been chopping around in a 50 pip range for the last few hours and is expected to stay pretty much range bound now until the big hitting Europeans join the fray.
Bank analyst reactions to developments in Cyprus
Many thanks Rich for the excellent synopsis of 9 major bank analysts and their take on the weekend developments in Cyprus.
They are definitely not of a uniform view, but overall the sense is that this will not lead to a bout of major contagion across all markets. Cypriot banks are seen as a special case and the liklihood of these actions leading to runs on banks in Spain, Portugal and Ireland is seen as quite low.
They expect the EUR to remain under pressure for the early part of the week until bond markets settle down.
EUR/JPY: Risk definitely turned to downside
I'm glad I closed out all my positions last week and my premonition that something was about to happen seems to have been proved correct. The monthly S&P 500 index is threatening to top out at the same level for the third time in 10 years and the events in Cyprus are threatening to send Europe into a spiral of contagion yet again. I'm wondering what small savers in countries like Spain, Portugal and Ireland might now be thinking? Will they also be running to the bank when it opens on Monday morning to withdraw their deposits?
The next question is which currency to buy in this environment? I'd avoid Europe completely and maintain a total EUR negative bias,and the GBP and CHF will also be affected, albeit to a lesser degree. AUD may struggle if risk-aversion rises and stock markets fall. Emerging markets will also be avoided so its to the big safe-haven USD we must look, and possibly also to the JPY? The market is undoubtedly short of Yen so we might even see a bigger-than-anticipated drop in the JPY crosses if risk-aversion really picks up.
I'm selling small EUR/JPY here at 122.40 and will look to add on any rallies back towards 124.00. Volatility will be high so I need to stay small and flexible. My target for this move is 112.00.
EUR/USD: Barrier protection at 1.2900
A local hedge fund tells me that there was talk on Friday of a barrier at 1.2900 which looks to be still in place.
EUR: Best avoided until the dust settles
It's not a great start to the week for some European bank-account holders to find that 10% of their deposits have been removed to pay for someone else's excesses! This will not create any good news for the EUR so I will avoid it completely until the dust settles and we know the whole story.
USD/JPY: Favour buying dips to 93.80
I think the USD may rebound once all the cross activity has been taken care of so I'm looking to buy USD/JPY near a 50% retracement level and 21-day MA near 93.80.
EUR/USD trading 100 pips lower after Cyprus bank tax
EUR/USD opened 100 pips lower after EU FinMins agreed to Cyprus imposing a tax on bank deposits. The crosses have been smashed with EUR/JPY gapping sharply lower as trailing stops below 124.00 were wiped out, it's currently trading near 122.00.
I will be very cautious about buying EUR in this situation but I think the USD may rebound later in the week so I'm happy to try and buy USD/JPY or USD/CHF dips.
Trading opportunities on Monday morning
I'm not expecting much volatility on Monday morning but those with early interbank access can nonetheless be on the look-out for some stop-loss hunts which might offer good entry levels:
- USD/JPY: Option expiries at the end of last week were the main factor in prices moving back towards 95.25. I don't see any major reason to exit the bull train here so buying sharp stop-inspired dips still seems like the obvious play.
- CHF: I'm very glad now that I exited both my USD/CHF and EUR/CHF positions. I'm looking to buy deep USD/CHF dips but I'll need to be patient.
- AUD/USD may offer the best opportunity tomorrow morning. I still like the sell-rally play here so any 50/75 pip rallies towards 1.0500 are currently looking like good-value sells.
- Cable market is in short-covering mode but we are still in an overall downtrend. Market info suggests that levels near 1.5225/50 could be good short entry points.
AUD/USD: Very quiet in Sydney with few flows of note
There were a couple of very minor flurries in AUD/JPY and in AUD/NZD but otherwise its been a very quiet end to the trading week for the AUD. No major flows or interesting names were reported and despite the break above chart highs at 1.0370, interest remains very muted.
I'm done for the week, and for the first time this year I will enter the weekend without a position. I've put a 'silly' bid in the USD/CHF, hoping I might get set on an exhaustive sell-off, but otherwise I'm staying on the sidelines.
Have a great weekend and I'll update over the weekend if I hear anything interesting++
Cable: If you're looking for a place to sell....
My old friend the flow guy has resurfaced again and he reckons that some of the big players are going to try and corral the cable for a few sessions? Perhaps a big double-no-touch? Anyway, the early gossip is that big selling interest will be near 1.5220 through 1.5250. With buying interest near 1.4800, it sure does sound like a dnt.
As always, wait and see if prices stop at the reported levels, if they do then the orders might well be big enough to hold the market for a while. (Hint: If it does stall there, and you're sitting on stale longs, sell some of them and don't be too stubborn).
Mr Yen: Quite unlikely for USD/JPY to rise above 100
Former Ministry of Finance chief Sakakibara is being quoted on DJ newswires as saying that it's unlikely that the USD/JPY will rise above 100. I can't remember what his track record in office was like, in terms of forecasting that is, bit hit and miss like everyone else I suppose?