Cable makes new lows below 1.5130, USD/JPY gaps 100 pips higher
The early interbank market is up and running and cable has traded to fresh trend lows near 1.5100 in the usual thin trading conditions.
USD/JPY has gapped 100 pips higher in what looks like a complete overreaction to weekend reports that current ADP president, and noted 'Dove', Kuroda is likely to be the next BOJ Governor.
EUR/USD is slightly higher due to solid cross-buying interest.
GBP to be the main focus on Monday morning
Cable fell by about 90 pips in thin late-NY trade after Moody's downgraded the UK by 1 notch. This move was overwhelmingly expected but many players will not or cannot act until after the event. Asset managers and much of the real-money brigade may now be forced to chase this move lower. This is how I would play it on Monday in Asia, when it will be volatile:
- I think its best to stick with the sell-rally strategy in the GBP.
- The AUD may also struggle as risk sentiment suffers.
- I prefer to sell rallies in USD/JPY as GBP/JPY selling should be a major factor from real money accounts.
- I prefer to buy big dips in EUR/USD (somewhat dependent on Italian election of course), as real money will also be buying EUR/GBP.
Quick overview of Asian trade
- AUD rallied sharply after RBA Stevens speech which suggested to many that rate-cutting cycle is over.
- G7 and G20 spent lot of time discussing Japan's Yen policy- Stevens.
- AUD/JPY was main intraday mover, up from 95.25 to 96.35.
- GBP also triggered more trailing stops against the USD and the EUR.
- Regional stocks were mixed, Nikkei +0.7% but Shanghai and Sydney lower -0.7%.
- Gold $1585/oz.
EUR/GBP: Next technical support levels at .8605 and .8570
The 50% retracement of .8445/.8765 comes in around .8605 and there are some hourly lows around the same level to add strength.
Behind there is the 61.8% retracement of the same move as well as the up-trend line around .8570.
AUD: Professional analysts speculating that RBA rate-cutting is now over
Interesting how many analysts hang on every single word the RBA Governor says. The chatter now amongst professional analysts and commentators is getting very loud that today's speech was a hint that the interest rate cutting cycle has finished.
If that really is the case, its little wonder that AUD/JPY is rallying so much.
AUD/JPY: Seeing some quite heavy short-covering
It looks like the short-term market was quite short of this pair, which does surprise me somewhat, and we are seeing some quite heavy end-of-week short covering. I'm now really glad I didn't sell it this morning at 95.30. Overall my bias is still to sell short-term rallies so I'll sit and watch for a while and hope for a 'silly' entry level.
Not seeing too any obvious trades at the moment but Steven's comments on Yen are interesting
The comments from the RBA Governor regarding the Australian economy were a bit mixed but the fact that the AUD/USD is back above 1.0300 does tell us something; namely that the short-term market is caught short at the wrong levels. No reports of any big flows or orders, so today's AUD rally is simply and end-of-week short squeeze.
Glenn Stevens did say one other interesting thing; that the weakening of the JPY had been a bone of contention at the recent G7 and G20 meetings. Whilst he distanced himself from comments made by RBA board members Ridout where she criticised the Japanese Government for their tactics on the Yen, he didn't rebuff the comments, merely saying that she had not been speaking on the board's behalf.
I'm watching levels around 96.25 in AUD/JPY and I may try entering a short if we get close to that level, but as always best wait and see how the market looks if/when we get there.
AUD dips again as Stevens changes tone
Its been quite an inconsistent speech from the RBA Governor, who sounded as if he was returning to his hawkish ways only to then say that easing is still more likely than tightening.
AUD/USD topped out at 1.0305 and has dipped to 1.0270. Pick a wide 80 pip range and trade that would be my advice. Or even better advice is to leave it alone!
Stevens: Only central banker who's happy with currency level
Glenn Stevens has been surprisingly hawkish, saying that the FX level is appropriate and that there is a good deal of interest rate stimulus in the pipeline. AUD bears will need to re-assess their positioning in the light of these comments and perhaps a buy-dip strategy with stops now below 1.0150 is the more appropriate short-term strategy?
AUD rallies sharply on Stevens comments
Very sharp 50 pip pop in the AUD/USD as Glenn Stevens returns to his old ways of talking up the resources industry. He's not sounding like anyone who plans on cutting rates anytime soon.
I've left a flyer sell order in at 1.0325, let's see what happens.
Equity markets are key to today's FX movements
There were nasty falls on some equity markets yesterday and there is something about Friday's which unsettles share markets. I don't follow stocks closely enough to have any strong feel as to which way they will go, but if they do start tanking then that will have a big impact on the FX market.
Currencies like the AUD could be particularly affected if macro funds and asset managers start liquidating share holdings and then start selling the currency.
That's the only real risk I see today. Good luck out there!
Technicals updated
- EUR/GBP has retraced to 38.2% level.
- EUR/JPY still inside the pennant formation.
- EUR/USD looking to major support at 1.3060.
- Cable has rallied off interim lows but still looks very soft.
My overriding sense after doing the short and medium term technicals (see charts in members) is that EUR/GBP is still a buy-on-dips proposition.
Profit target hit in EUR/JPY
Many thanks to Jordan for pointing out the possible EUR/JPY double-top this morning and whilst I wasn't completely convinced by the technicals, I did like the direction and risk-reward. I've booked a swift 140 pips and will try and be patient (not my strong point) and wait for the next 'no-brainer'.
Another old adage: GBP market always ignores what happens in Asia
Cable is back close to regaining 1.5200 and another old market saying is that the London market will always undo any fresh moves made in sterling during Asian trade. That seems to be happening with the gap lower from 1.5225 nearly closed now.
Selling rallies looks like a safer bet in the GBP and EUR/USD does indeed seem to have found itself a new pivot around 1.3260/70.
I expect to see both USD/JPY and EUR/JPY appreciably weaker tomorrow so do what you can to help :)
Levels to watch during European trade
- AUD/USD: 1.0200 is where barriers are reported and Sovereign-type bids are also expected.
- EUR/USD: 1.3260 might prove to be a short-term pivot just like 1.3350 was for a few sessions?
- USD/CHF: Bearish trend line at .9325.
- GBP/USD: Optionality at 1.5050 and 1.5000 in particular likely to prove very attractive.
- EUR/JPY: Pennant formation 122.00/126.00 roughly.
Cable: Still no bids in sight, its never too late to sell sterling
The cable has had another vertical fall, 75 pips this time, and as the old saying goes, "its never too late to sell sterling". It seems to react like no other currency pair when its falling, straight line down and slow climb back up.
Just hearing from one UK bank that they expect some support near 1.5060 which leads me to suspect a barrier at 1.5050?
EUR/USD: Consolidating below 1.3260 heading into the European open
Looks like the bears might be in charge for the moment with the USD taking a big boost from the overnight FOMC. No news is good news in the FX market, and the quiet surrounding the US economy, US politics and the USD, are all benefitting the Greenback.
EUR/JPY has been soft during Asian trade and this was the main driving force behind the fall in the EUR/USD.
Not hearing much in the way of decent buying interest until corporate bids at 1.3180/90.