Day ahead in the FX market, Wednesday January 16th
- JPY crosses moved lower overnight and they will be the market's focus again:
- No major economic data so we will rely on flows and statements for volatility and direction:
- EUR/USD, good-sized bids reported near 1.3250:
- USD/JPY: Japanese market is very short of Yen so we might see further short-covering in this zone:
- CHF remains weakest of majors with bond outflows the big driver:
- AUD/USD is quiet in tight ranges with focus firmly on other pairs.
CHF/JPY: Taking some profit off the table
I shorted this pair yesterday morning and a 200 pip profit is not to be sneezed at. I'm taking 60% of the position off the table and will reassess. I prefer the EUR/CHF trade overall but (rightly as it turned out) I felt the JPY crosses might be due for a short-term correction. I've also closed out my small 88.75 USD/JPY shorts from last Thursday at break-even. It had a really good chance to go lower last night but didn't do so.
EUR/USD orders: Trailing stops and heavy bids
Still same reports as earlier today, trailing stops below 1.3320 and again below 1.3295, with bids expected to be solid at 1.3250.
Yen profit-taking starting to intensify
I'd expect any rallies in EUR/JPY, USD/JPY, GBP/JPY, CHF/JPY etc to meet with plenty of grateful profit takers and I'm trading these pairs from the short side but with realistic expectations. USD/JPY could see 87.00 on a sharp sell-off but I'll cover there initially, 94.00 is my first target in CHF/JPY, and whilst I don't have any direct exposure to the other pairs, I think 117.50 will be the first EUR/JPY target and GBP/JPY may fall a little further, possibly 139.50?
Quick overview of Asian trade
- Fed chairman Bernanke didn't say anything exciting and the FX market hardly moved during his Q&A:
- EUR/CHF was again first mover, gapping from 1.2320 to 1.2370 on modest flows:
- EUR/JPY touched 120 again but fell very hard on comments from Japan's EconMin Amani:
- Similar to yesterday's comments, he was reported as saying that Yen fall was too quick although there is some debate about what he exactly said:
- USD/JPY fell to 88.65 and EUR/JPY to 118.60:
- CHF/JPY was obviously the big mover, down from 97.20 to 96.00:
- AUD/USD was very quiet in 30 pip range with focus on neither of these currencies:
- Gold $1670/oz; Nikkei +0.5%; Hang Seng -0.3%.
Cable: 1.5950 is big level to watch
Many of the so-called structural stops are reportedly below 1.5950; options book will start more aggressively hedging the downside, and corporate and real-money will also start hedging below this level. Keep this in mind in coming sessions as it may act like a magnet once again, drawing prices towards the mass of activity.
EUR/JPY: Still like 117/120 consolidation range
There is some debate going on as to exactly what was said by the EconMin but the reaction tells us a lot about the state of the market; its short Yen and getting nervous. I tend to think that 120 will now cap EUR/JPY for a few days and that we will see a dip towards 117.50 and possibly even 116.00.
That's why I like the short CHF/JPY trade so much; if EUR/CHF takes off towards 1.30 then the CHF/JPY cross could be back below 90.00 very quickly indeed. Wishful thinking on my part perhaps, but you gotta have a plan!
Short JPY accounts are mainly in Asia
Just reading an interesting note from one of the big banks that seems to be suggesting that most of the big Yen short positions are based in Asia, so if we are to see sharp short-covering, like we just did after the Amani comments, then its more likely to happen in Asia.
CHF/JPY: Look to add to shorts on rallies back to 96.75
The comments from Japanese EconMin Amani showed that they are beginning to feel uncomfortable with the speed of the Yen fall. CHF/JPY has been the big mover, down over 100 pips on the session, and I will look to add to existing shorts on rallies back to 96.75.
EUR crosses on the move
There is a big difference between wanting to buy and needing to buy, and the current EUR move is a perfect example of the latter. EUR/CHF is 200 pips higher in the last few sessions and the market simply cannot get what it needs at these levels. This cross is another 50 pips higher in Asia in thin trade. EUR/JPY is rising in sympathy.
Just popping out to lunch, back shortly.
FX market staying quiet post-Bernanke
The Fed chairman didn't have anything enlightening to say and the FX market is having a day off, with the majors trading in 10/15 pip ranges. With nothing much of note on the economic calendar, I think it will stay quiet until Europe gets in.
CHF/JPY: Looking for a selling opportunity
I think we are at the beginning of a period of major moves in the FX crosses that began with a significant weakening of the Yen and is now beginning its next phase which is a strengthening of the EUR against other European majors.
The Yen weakening has all been caused by verbal intervention, with no actual notable policy changes yet taking place. Even if and when they do occur, it may be a matter of sell-the-rumour-buy-the-fact. So we may see EUR/JPY consolidate or even retrace a little whilst the EUR makes gains against other currencies like the CHF.
I'm building a short CHF/JPY position roughly between 96.75 and 97.75. I will re-assess on a clean break above 98.25.
EUR/USD: Bank research still suggests move to 1.36+
This research has been very consistent over recent weeks, suggesting that overall flows favour a higher EUR/USD, especially bond market activity. European bonds had their biggest inflow week in over 2 years whilst Swiss bonds recorded a large outflow which of course explains the big move into EUR/CHF. Activity in the options market suggests that the market expects this EUR/CHF trend to continue.
The day ahead in the FX market, Tuesday January 15th
- Not much of note on the economic calendar after Mr Bernanke's Q&A this morning:
- We may see more focus now on pairs like GBP/JPY and CHF/JPY, and I'm looking for some aggressive retracements to begin:
- AUD/USD; sell orders near 1.0600 with stops above 1.0605 (usually these levels are magnetic):
- EUR/USD; consolidating in tight 50 pip range, buying dips favoured whilst crosses are bid:
- USD/JPY; might see some selling pressure, dependent also on what Mr Bernanke says:
- EUR/GBP and EUR/CHF to remain focus of market.
EUR/GBP, EUR/CHF maintain bullish momentum
This is a fairly significant move taking place in the market at the moment with the EUR maintaining its bullish rage, this time mainly against the CHF and the GBP. EUR/JPY has consolidated below 120.00. I think there is more come, especially against the CHF, although as always in steep trends we need to be wary of sharp pull-backs. I will run through the important levels in the crosses later this morning.
Mr Bernanke will speak in an hour and that is certainly the next big risk event.
EUR/USD orders update
- Light trailing stops below 1.3325 and again below 1.3290:
- Heavy buying interest expected near 1.3250, including real money and Sovereigns.
(There are no firm bids at this time but interbank sales desks report that both these categories need to buy EUR/USD and that this 1.3250 level is now the most likely to attract such interest).
EUR/JPY giving back this morning's gains: 117.50 now support level
I know that's a long way away but we can expect heightened volatility for next few sessions. 120.00 has more or less capped this pair leaving it susceptible to profit taking moves and there isn't much in the way of support until 117.50, according to interbank order books. Intraday bears can contemplate selling tight rallies with a stop clearly above this mornings high.