USD/JPY: Whippy as retail market opens
Looks to me as if some stops were triggered below 85.70 in very thin trade. Market dipped from 85.80 to 85.65 and is now back at 85.75. I think it may be that sort of day.
"Wait and see" is the best strategy today
Running large positions on a day like today is probably not a great idea although if large hedge funds already have them built up, they have little choice but to hang on and hope. These big funds normally have excellent contacts into Washington and the fact that they seem happy to sit on their positions (short JPY) does suggest that they are confident of a positive resolution at the last minute.
For the rest of us mere mortals, it's a matter of waiting to see if the market gives us some opportunities. I'd suggest that we should wait and see how the market reacts to the first of the headlines once they start hitting the screen, and then decide on our strategy from there.
FX market flows and order levels
- EUR/JPY: Stops expected both sides of market, below 113.20 and above 114.80:
- Technical support levels in EUR/JPY start at previous highs near 112.50:
- Sell orders reported on Friday at 114.20/30 but may have been cancelled over the weekend:
- Sovereign names seen buying EUR/USD below 1.3175 on Friday evening:
- EUR/GBP: Stops reported on Friday last below .8160:
Monday morning open, January 31st
Last day of the year and the market is relatively quiet awaiting more developments in the US fiscal cliff negotiations. Agreement on some sort of stop-gap measures still seems like the most likely outcome (just like last time) but if no deal is reached then we will see some heavy selling of the Yen crosses in my opinion. No market moving headlines are expected before 00:00 GMT.
Profit taking was the main theme on Friday with EUR/JPY falling almost 150 pips in a very short period of time and other pairs like EUR/GBP also seeing significant profit taking in thin markets.
Other markets were fairly quiet all round and all movement today will depend on headlines out of Washington. Many traders who would normally have the day off are active this morning.
USD/JPY opened 15 pips below its NY closing level from Friday but has bottomed out so far near 85.80. The other majors are hardly moving.
Good luck today.
EUR/JPY: Next major technical resistance at 116.70
116.70 is the 50% retracement of the big fall from 139.20 to 94.00 and should be respected, as the Yen pairs always seem to pay particular attention to the 50% pull-back level. Above that, there is more resistance in a row of daily highs near 117.90.
Support levels should now be firm beginning at 112.50 down through 111.40.
Playing a wide 111.50/116.50 range over the New Year holiday does seem like a sensible strategy.
EUR/JPY: Optionality expected at 115.00
No sign yet of any slowdown in the EUR/JPY bull move and I suspect that Japanese investment funds have been buying this morning. The high so far has been above 114.70 and there are expected to be barriers in place ahead of 115.00.
Japan's core CPI came in at -0.6% YoY, meaning that Abe and Co will have a tough job getting to their 2% target.
More Yen selling is also helping the Nikkei, up by over 0.75%.
Japan manufacturing PMI falls to 45.0
Any PMI number below 50.00 signifies contraction in the manufacturing sector.
EUR/JPY has now reclaimed all of it's overnight losses and is back trading close to it's overnight highs at 114.30.
EUR/JPY: Still plenty of demand, buying dips favoured
The overnight highs at 114.30 should attract some profit takers during Asian trade but with EUR demand seemingly increasing across the board in thin markets, buying big dips also makes plenty of sense.
The obvious support level to watch is the previous spike high at 112.50 with last night's dip to 113.40 providing support ahead of there (but likely now to have trailing stops below).
Plenty of volatility in thin overnight markets
The FX market will not return to full strength until January 7th although we should see some players back on board by mid next week. This reduced liquidity is leading to plenty of volatility.
Cable was a stand-out, rallying to 1.6200 in European trade before turning and collapsing 140 pips. The GBP also lost some ground overall against the EUR and as I mentioned yesterday in the technicals, the EUR/GBP cross could be one of the surprise movers in early 2013.
EUR/JPY traded to a high of 114.30 before dropping sharply by 90 pips. This might be a sign of some more profit taking to come and if you fancy picking a top in the Yen crosses, then maybe GBP/JPY is the pair to look at?
AUD/USD is consolidating its recent falls in a tight 1.0345/85 range.
The EUR is in demand overall as it is presently seen as a safer haven than either the USD or the JPY (which is a pretty poor reflection on those currencies).
EUR/AUD m/t technicals: Pivotal resistance looming at 1.2925/50
Once again its best to look at the longer-term charts to get a feel for what might happen in this pair. We have previously major lows at 1.2950 and the 100-week MA just below there. I suspect that this level will be pivotal to future moves and a clean break above prior weekly highs at 1.3030 might well lead to a sharp move higher (1000 pips or so certainly look possible).
Of course if these resistance levels hold firm then the case for further downside will look very strong indeed.
EUR bulls always look very silly once the bad news starts flowing again but for now at least, long EUR looks like the more promising trade.
EUR: Looks like market needs them
Big difference between needing and wanting, and at the moment it looks like the market is in desperate need of some Euros. Most of the big speculative short positions have been significantly reduced over the last few weeks but there are still a few shorts out there who must be getting nervous in very thin markets.
My sources in the debt markets tell me that its mainly one way traffic now into the EZ debt markets. The EUR is seen as a safer haven than either the US (fiscal cliff) or Japan (getting ready to spend big) and with yields higher anyway in Europe, its little wonder that real money is flowing that way.
Liquidity is poor so moves will be exaggerated, and my gut-feel is not be trying to sell the EUR over the next week or so until the market returns to normal liquidity.
EUR/USD has taken out an hourly high at 1.3250 and is now eyeing 1.3295.
EUR/GBP m/t technical analysis: Bullish outlook for New Year move to .8800
I normally don't start with a monthly chart, which is usually a waste of time, but in this case we can see that the sharp bullish move from .6550 to .9800 has retraced exactly 61.8% to .7790, which is approximately where the 100-month MA also was.
Moving on to the daily chart, we can see a very nice inverted H&S formation which broke its neckline at .8165. This is another very bullish sign and gives us a logical level from which to base any bullish strategies.
I'm running a long position here and may look to add in the New Year, depending on how the market develops.
AUD not showing any inclination to bounce
International asset managers have been buying Australian stocks this month, leading to a 3% rise in the stockmarket already in December. Despite this, the AUD is lower against the USD by around 0.5% since December 1st and by over 2% since the holiday period began. I think this just goes to show how unbalanced overall positioning was in the AUD.
Fairly quiet again in Asia with only one quick dip from 1.0365 to 1.0350 worth mentioning. Only thin people work in dealing rooms over Christmas (skeleton staff) and most big corporates and real-money players are similarly quiet.
Japan Chamber of Commerce: Happy to see USD/JPY in 85.00/90.00 range
The head of the Japanese Chamber of Commerce is being quoted on Dow Jones as saying that JPY85 is about the break-even level for Japanese business.
USD/JPY has eased only very marginally off earlier highs at 85.85.
USD/JPY and EUR/JPY still edging higher
USD/JPY is consolidating it's break of previous highs at 85.50 and continues to edge higher in quiet trade. The cross is also creeping slowly higher and it's pointless getting in the way of this trend.
Europe should be back to full strength later today and I'm sure volatility will pick up.
New Japanese FinMin named
Taro Aso is the 6th finance minister in recent years and is well known for his willingness to open the purse strings in order to promote economic activity.
USD/JPY is edging higher and maintaining it's bullish tone.
EUR/JPY intraday outlook: Play edges of 112.50/114.00 range
Bulls still in complete control and no sign of any topping formations developing. I'd expect dips to be limited during Asian trade to the previous highs near 112.50/60. Sell orders are reported near 114.00 so I'd use that as my topside target today.
EUR/USD: Expect to stay rangebound between 1.3150/1.3300
The EUR is well bid on the crosses with EUR/JPY making a 16-month high and EUR/GBP, EUR/AUD and EUR/NZD all making very solid gains. The EZ debt market has calmed considerably and asset managers are now looking at the very attractive yields available, rather than worrying about default, and this is also driving funds into the EUR.
EUR/USD should continue to consolidate between 1.3150/1.3300 and shorter-term moves will be at the mercy of EUR/JPY flows during Asian trade.