Yen crosses drifting lower
The early Tokyo euphoria around the Yen crosses has dried up and we are down at session lows on most crosses. Not much happening on the newsfront, just the usual cut and thrust to start the week.
JPY crosses probing higher in early Tokyo trade
EUR/JPY is trading above 107.00 in early Tokyo and the next level to watch is reported sell orders at 107.35. Some of the smaller crosses like CAD/JPY and NZD/JPY are being mentioned in interbank flow reports this morning which does suggest that the buying could be related to Toshins or investment fund issuances?
Cable trade idea: Sell into technical resistance
The EUR/USD rally on Friday was sort of understandable in that the market was short and engaged in short-covering ahead of a significant risk event. The fact that cable rallied strongly alongside is less logical and the technical picture does seem to be offering up some potentially good risk-reward trade opportunities.
The recent down-move from 1.6310 is approaching it's 50% retracement level at 1.6060 which is also roughly where the 55-day MA sits. The bearish trendline is also sitting just above there near 1.6090.
I've been running a small short position here in recent weeks and I am looking to add between 1.6060/90. I will start reducing again above 1.6130ish.
GBP/CAD: Hedge funds watching this pair closely
Nice to see some of the big hedge funds reading my modest posts, and I've just received a note from one of the significant players who tells me that AUD/USD isn't the only weekly wedge being monitored by the market. Have a look at the weekly GBP/CAD chart and we can see why this pair is also attracting plenty of interest. There have been some very big option plays here over the recent months across a number of time-frames and there is still plenty of on-going interest.
Obviously short positions would seem favoured given the present set-up but watch out as well for a break above the 200-week MA as that could be the trigger to set-off some very serious short-covering. Not a pair I plan on trading but it's vitally important to know what the market is looking at as these levels have a huge impact if/when they are tested and broken.
Asian market open
You can click through here and read my full Asian market open commentary on FX Street.
AUD/USD session outlook: Eyeing the top of the weekly wedge
I've been trading this pattern for the last few months and it's been pretty good to me so no point in stopping now. These wedge patterns are invariably continuation patterns so we should see a move higher eventually once it breaks out. But with the RBA likely to cut rates again next week, selling rallies in the AUD does seem like a sensible strategy. There is also an obvious stop-loss level now above 1.0635; if that breaks then I'll switch into bullish mode.
On a shorter-term view, recent daily highs at 1.0480 and 1.0510 should prove quite resilient and should cap price moves on the day. Prior highs at 1.0420 provide the first support level. I'd play this range with a bearish bias.
EUR/USD session outlook: Look to find new trading range on higher plane
The short-term charts show quite an impulsive move higher but they also look over-stretched. Don't forget that we are still in range-trading mode here so it's a matter of finding the correct ranges to trade across all time-frames. Recent short positioning will have been greatly reduced on the move higher and as there has been no fundamental change in this pair, I'd expect sellers to soon exert a more meaningful influence.
Short-term, I'd suggest 1.2850/1.3125 as a likely trading range and for today's session I'd play 1.2925/1.3010 with a neutral bias. As always avoid trading in the middle of prospective ranges and aim for the edges.
Day ahead in the FX market, Monday November 26th
- Quiet start to interbank trade with majors near Friday's closing levels:
- EUR made solid gains across the board on short-covering ahead of renewed EZ meetings:
- EUR/USD next technical resistance at 1.3020/25; still in medium-term range-trading mode:
- EUR/JPY, sell orders reported on Friday night near 107.35:
- USD/JPY still consolidating, still looking bullish, macro funds looking to buy dips:
- AUD/USD eyeing top of 'weekly wedge' near 1.0525, no data today:
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EUR/USD: Barrier pops but no volatile follow-through as corp sellers await
Relatively small barrier at 1.2900 has been consigned to history but there has been no volatile break above, with corporate sellers sitting in wait near 1.2910. If bearish, wait until the bulls get their fill and then sell into the exhaustive rally. If bullish, hang tight and see what happens.
GBP/AUD outlook: Indecision inside tight ranges
This pair has been stuck inside a relatively tight long-term range between 1.46/1.61 and this is really symptomatic of the market as a whole; we've gone from extreme volatility to virtually none. From a purely technical perspective, the current consolidation looks like a pennant and these would normally break lower eventually in line with the dominant bear trend. But, trying to trade this pair from current levels right in the middle of its range is extremely tricky indeed. You could be lucky and pick the next 500 pip move but unless something changes fundamentally in the near future, I'd stick with the big range and wait for a break before committing to bigger moves.
Modest amount of USD selling in quiet trading conditions
It will be a very quiet session to end the week here in Asia, with only a modestly lower USD to report. Come back in a few hours when Europe opens to see if any trading opportunities emerge then. There is a barrier at 1.2900 In EUR/USD which they might have a go at.
USD/JPY: Trying hard but unable to generate bearish momentum
The bears are trying to take advantage of severely overbought technicals to try and wrest back control from the rampant bulls but even breaking below an hourly low at 82.25 is proving to be a difficulty task. Nevertheless with the weekend almost upon us and the market undoubtedly sitting long, I suspect that there will be plenty of trailing stops below 82.20 which might get triggered during European trade. Selling now between 82.50/60 hoping for a bearish break, with a stop above yesterday's highs, makes good risk-reward sense (for bears that is).
USD/JPY session outlook: Still heavily overbought but remains resilient
Some of the cross pairings look exceedingly overbought on shorter-term time-frames but that is usually the case when a sharp trend emerges and does not necessarily mean that a top is in place. We might simply get a period of sideways trade before the next move higher?
- Support should now emerge in USD/JPY near the previous consolidation top at 81.50:
- Sell orders are reportedly solid 83.20/35 and should contain on the first attempt at least:
- Holidays everywhere today so ranges more likely to be very tight.
EUR/USD session outlook: Should struggle ahead of 1.2900
- EU council meeting starts shortly but headlines are unlikely for quite some time:
- The EUR did well on the crosses again yesterday with EUR/GBP leading the way in overnight trade:
- EUR/JPY should now consolidate above previous resistance at 104.80 although the short-term charts are heavily overbought:
- EUR/CHF has been trading near the SNB zone which of course raises the possibility of the SNB possibly sitting on the offer in EUR/USD once again?
- There is talk of a barrier at 1.2900 in EUR/USD and corporate sell orders at 1.2905/10, which should be difficult to overcome in thin holiday trade.
Overall prefer to sell any intraday rallies towards 1.2900 with fairly tight stops but unless you are very keen, it's probably best to take a few days off!
The day ahead in the FX market, Friday November 23rd
- Should be very quiet with the US closed for Thanksgiving long-weekend and Japan also closed:
- Most topside trailing stops in EUR/USD seem to have been now filled:
- Corporate sell orders reported in EUR/USD at 1.2905/10:
- USD/CAD again fails to break through .9950 and could now be vulnerable to short-covering rally:
- AUD stuck in range-trading mode with very little interest on order boards at the moment:
- GBP showed more weakness overnight on the crosses and the close above the 200-day MA in EUR/GBP could be significant:
- JPY crosses will again lead the way in terms of flows and market interest.
10-year Greek yields almost 0.5% lower
The EUR is getting a boost from the sharp drop in Greek 10-year yields.