EUR/JPY session overview: Selling rallies favoured intraday
Overbought signals are slowly being unwound and with the general election looming, I would expect Yen shorts (reportedly at extreme levels) to continue covering as the week progresses. Selling rallies back towards 107.00 looks like the obvious risk-reward play, in expectation of a fall later in the week towards 105.30 at a minimum. On the day I'd expect 105.90/106.90 to cover most eventualities.
The day ahead in the FX market, Tuesday December 11th
- Ranges hold firm overnight for all major pairs:
- No major economic releases today, with Australian business confidence and Chinese new loans the only 'highlights':
- USD/JPY staying stable ahead of weekend's election but reports suggest that Yen short positioning is at extreme levels:
- USD/JPY still stuck in 81.70/82.80 consolidation:
- AUD/USD also stuck in neutral; macros and Sovereigns selling 1.0510/20, same Sovereigns buying dips:
- EUR/USD stalled ahead of solid bids 1.2870/80 and triggered trailing short stops above 1.2930; sell orders reportedly solid 1.3000:
- Cable still being 'monstered' by option players:
- Gold +0.5%; iron ore +2%; stocks flat.
EUR/JPY intraday update: Lower on risk aversion as Italian bank stocks crash
10-year Italian bond yields are around 25 bps higher and bank stocks are around 6% lower, both of which are bearish signals for EUR/JPY. Recent positioning reports have JPY shorts at extreme levels, and with the general election only 6 days away, its also no surprise to see some Yen short-covering taking place.
All of this means that EUR/JPY is lower intraday, down from a NY closing level near 106.65 and targeting a daily low at 105.30.
USD/JPY technicals: Flag or double-top
Nice looking formations on the 4-hourly USD/JPY chart, and all we need to do is figure out whether the flag formation (continuation pattern implying more gains) or the double-top formation (topping pattern implying a break lower) is dominant.
It's pretty clear in my mind that the bulls have the stronger cards here. The recent trend is in their favour and burden of proof is with the bears, they must break and hold below 81.70 in order to confirm a turn of events.
I'd continue to play this range with a bullish bias but be ready to up the ante once we get a break in either direction.
Italian yields on the move
The yield on the 10-year bond has risen by almost 30 bps on the European open, on the back of more political unrest.
The EUR/USD dipped from 1.2910 to 1.2885 (yet again, for 3rd time today) but is now back above 1.2900.
EUR/USD bulls: Might be worth an intraday trade near 1.2870
There are reportedly stops below 1.2870 but they were protected even in thin early Monday morning conditions, so I suspect that there is buying interest around there as well.
I'd wait for a test of 1.2870 but if it looks like holding, then jump in with a tight stop, looking for trailing stops above 1.2930 to get triggered later on.
Quick overview of Asian trade
- EUR opened lower after Monti's resignation and more dovish ECB comments:
- Market again tried to trigger stops in EUR/USD below 1.2870 but ran into solid buying interest:
- Pair has spent majority of Asian session between 1.2890/1.2910:
- USD/JPY has traded a 20 pip range, 82.40/60, with EUR/JPY edging lower from the NY close near 106.65:
- Chinese trade data was worse than expected with the surplus in November falling to $20 billion from $32 billion last time:
- AUD/USD dipped by 15 pips on this data but has otherwise been stagnant near 1.0475:
- Sovereign sellers are reported in AUD/USD between 1.0510/20:
- Regional stocks slightly higher, +0.2% on average.
EUR drifting lower in quiet trade
Typical Monday afternoon in Asia with USD/JPY in a 5 pip range and EUR/USD easing lower after failing to close the opening gap from this morning. The AUD is also very quiet after some very brief 'excitement' post China trade data.
There is plenty of individual European economic data out in early European trade, which may give volatility a boost, but banks are reporting very few major flows which is not unusual for this time of year.
AUD dips 15 pips after Chinese trade data
The Chinese trade surplus in November fell below $20 billion from $32 billion last month.
AUD/USD dipped from 1.0480 to 1.0465 but is now steadying.
EUR/USD: Trailing stops above 1.2930
Obviously the bears cannot be feeling incredibly confident if they are leaving tight trailing stops so close to the market.
I suspect that any rallies to 1.2950 will run into welcome sellers so stop-loss runs are likely to be just that!
AUD/USD: Sovereign sell orders reported 1.0510/20
- Same names that are buying below 1.0400 are also selling 1.0510/20:
- Solid selling interest also from macro funds near same level:
- Heavy stops, mainly option-related, above 1.0525.
EUR/USD: Market aiming at stop-loss orders below 1.2870
Bit of an early push in the interbank market to trigger stops below 1.2870 but bids have returned in decent size near 1.2880, which was roughly the low on Friday.
I'll be back a little later this morning.
EUR weekly preview
- Weak start for the EUR but overall looks like EUR/USD has returned to its range-trading ways:
- ECB statement and Buba GDP forecast knocked EUR/USD 200 pips lower last week, probably not a bad result for the bulls who might have expected more:
- Big players are not really playing EUR/USD at moment, preferring to let the year wind down slowly:
- EUR/JPY will be the main driving force ahead of the Japanese election.
JPY weekly preview
- Big week ahead with the general election next weekend:
- USD/JPY stuck in a range between 81.70/82.80; break below could signify a topping formation whereas bullish break would suggest that we were in consolidation phase:
- Speculative market is likely quite short of Yen heading into the election so we should see some volatility:
- EUR/JPY starting to look tired and we may see a test of break-up level at 104.80:
- Host of data later today and markets reaction will give valuable insight into comfort levels and positioning.
I wonder where German unemployment would be if they still had the DMK?
The Buba's forecast of much higher German unemployment next year does beg the question, how high would the rate be if the Deutschmark were still in existence and trading at its true value? Probably double?
EUR selling gathers some momentum
EUR is falling quite heavily now led by EUR/JPY which stalled briefly at 106.50 but has now accelerated and EUR/AUD is also threatening to break lower. Best us bulls get out of the way for a while. Not hearing much in terms of flows but real money sellers were active an hour ago.
EUR/JPY: Close to my support levels near 106.50
I like looking for "impulsive" levels in the market, levels where the market accelerated from or bounced hard off. Last Friday we saw a very sharp move in EUR/JPY which took it from 106.50 to 107.30 during Asian trade. We are trading back close to the 106.50 level and if my theory is correct, this level should be hard to breach.
Today's NFP, yesterday's US trade data
I'm sure you are sick and tired of hearing about the 'good old days' but we've got to try and find some hope from somewhere :) .
When I started in the market it was the monthly US trade data which everyone waited on, just like its the NFP today. The volatility around those numbers had to be seen to be believed. I was trading interbank cable in Frankfurt at the time, and the market would deal on 50 pip spreads directly after the data was released. It was not uncommon for cable to have a 200 pip range in the European morning pre-data and then go on and have another 500 pips in the hour or so after the event. It was also not unusual for cable to finish the day exactly where it started. In fact cable traded around 1.60 for much of the late 1980's, just where it is now!
Which proves my point that it's about trading the market, not picking the direction.
And just as I finish writing this piece, EUR/USD starts to move. About time!