Quick overview of Asian markets
- EUR/USD opened at 1.2805 but quickly fell to 1.2765 after Moody's announced downgrade of French bonds (not unexpected):
- RBA minutes were slightly more dovish than expected, with line "further easing may be appropriate in the period ahead", which could mean December or February:
- AUD and CAD sentiment improved after IMF report formally recognised both as reserve currencies:
- BOJ kept policy unchanged as expected:
- China's FDI fell by 3.5% YoY, a slight improvement on the previous reading:
- Hang Seng +0.8%, Nikkei flat, Gold $1733/oz.
USD/JPY steady after BOJ keeps policy on hold
"Quick dip, quick rally, but back to where we were before" is the market reaction to the BOJ keeping policy steady as expected. Will probably stay quiet now until Europe opens up.
Cable: Bearish trading strategy
The basic idea behind this trade is that cable has posted a double-top at 1.6300 and that the bearish trendline resistance will withstand further tests before eventually turning lower for a retest of 1.5250. However we currently have a situation where barrier protection ahead of 1.5800 is stalling bearish momentum so the plan is to take advantage of this and hopefully this will allow us to take a much larger short position if/when the opportunity arises. Remember if you cannot afford the stop-loss amount then you should never take the trade.
- I'm basing this strategy on a maximum trade size of 20 units:
- Buy 4 units at 1.5870 with a stop-loss below the barrier at 1.5790:
- If done, sell 10 units at 1.6040:
- Sell a further 6 units at 1.6090, which would give me an average entry of approximately 1.6120 for 12 units:
- Stop-loss to buy 12 units at 1.6153 (basically I'm risking 80 pips on 4 units on the initial long position or 35 pips on 12 units once I turn short):
If the trade starts developing then I'll post the trading sheet in the members section. It's unusual for trades to develop exactly as planned so I will need some flexibility.
USD/CAD orders
There has been plenty of interest in USD/CAD over the last few days and congrats are due to one of our professional trader contacts who called this move very nicely last week. More stops are reported nearby, directly below .9950, but the fact that it stalled at .9955 overnight does suggest some buying interest just ahead of the stops.
AUD/USD: Staying well bid despite RBA minutes
The AUD still looks reasonably strong despite the pullback after stops were triggered above 1.0420. Even the improved prospect of a 25bps rate cut in December is not dissuading the AUD bulls. If this currency cannot fall amidst falling interest rates and falling commodity prices, then it really is the teflon currency (but lets hope we see one exhaustive sell-off before the next big bull run takes over!). Dealers mention decent sized stops above 1.0470 and 1.0480 and they may well be next on the radar?
AUD/USD session outlook: Benefitting from 'reserve currency' chatter
More reports overnight regarding the AUD reserve currency status, this time coming from the IMF who now formally recognise the AUD and CAD as reserve currencies alongside the existing 5 (USD, EUR, GBP, JPY and CHF). We don't know exactly what this means in terms of ratio-adjustments by the various central banks but it certainly is bullish for Aussie sentiment. EUR/AUD has taken a fall after the Moody's decision and the market will look to the Nikkei open and the Tokyo Fix for AUD/JPY leads. Short-term sentiment is bullish so buy dips to 1.0360/70 for another 100-pip grind higher. Medium term I still expect a top to form somewhere near 1.0500 but at some stage all this bullish news for the AUD will come back to bite us bears really hard.
RBA minutes will be released at 00:30 GMT and Governor Stevens is making a speech later today to the Economic Development of Australia annual dinner.
USD/JPY session outlook: Waiting for the BOJ
The BOJ's two-day policy meeting ends today and we should have a policy announcement in early afternoon (no change expected by all 22 economists polled by Bloomberg). The important level to watch is yesterdays highs near 81.55/60 and I believe there is still some decent selling interest near that level. The immediate upside pressure in EUR/JPY has also been eased after the Moody's French news. I'd play an 81.10/60 range in the short-term.
EUR/USD session outlook: Moody's downgrade of French bonds will affect sentiment
The EUR has unsurprisingly fallen across the board after Moody's downgraded French government bonds and their long-term economic growth outlook. This decision is likely to impact on the EUR for the rest of the morning although, with no major build-up of EUR longs in the market, its unlikely to have any lasting effect. There was some short-covering overnight in the EUR so we could see potentially see some of these positions reinstated if a bearish bias takes hold again. Moody's are only following the lead of other ratings agencies so there should be no dramatic impact in terms of asset movements.
EUR/JPY will hold the key from here on to moves during Asian trade, and the closer we edge towards technical resistance at 104.80, the more magnetic it will become. EUR/USD should start finding intraday support near 1.2760/70 and its unlikely that the overnight highs at 1.2820 will now be overtaken, unless something unexpected happens in EUR/JPY.
The day ahead in the FX market, Tuesday November 20th
- BOJ two-day meeting ends; all 22 economists surveyed by Bloomberg expect 'no change' to policy:
- RBA meeting minutes at 00:30 GMT followed later this evening by Governor Stevens speech:
- China FDI data at 02:00 GMT:
- USD/JPY remains very well bid, holding just below important technical resistance near 81.50:
- Recent recommendations in USD/CAD were spot on and its eased comfortably below parity:
- Market still in sell-rally mode in AUD/USD but it's back in grind mode and may target stops above 1.0460, depending on RBA minutes:
- EUR/GBP makes move higher with market lacking conviction in either direction:
- EUR/JPY is again eyeing vital technical resistance at 104.80:
- EUR/USD triggered stops above 1.2805 and then ran out of momentum.
Very noisy markets; waiting for some sort of signal.
(Apologies for the interruption, servers were down for a brief while).
The FX market is remaining very choppy with little or no direction. Best stay out until it starts to make some sense. See you tomorrow++
Around the strategists: Any stand-out trading ideas for early European trade?
Short answer is no but there are some reasonable risk-reward trades:
- USD/CAD seems well capped at 1.0040 so selling rallies with tight-ish stop above 1.0060 seems like a popular trade idea:
- USD/JPY; very well bid and most strategists favour buying dips varying from 80.90 down to 80.30 (my preferred entry level):
- EUR/USD; favoured selling near 1.2800 with tightish stops above 1.2825:
- AUD/USD; once again selling rallies favoured trade:
Unusually most intraday strategists seem to have same views, buying USD on dips with the exception of the CAD.
AUD/USD eases back off session highs in very early European trade
Solid selling interest was reported earlier at 1.0390/95 and that's probably enough information to encourage intraday longs to book their 25 pip profits and give up for the day. I'm guessing that local interbank dealers bought some extra for themselves whilst the earlier corporate buying was going through and they've now started taking their profits. It ain't sophisticated but it's effective! Session highs were at 1.0378 and we've now slipped back to 1.0365.
Around the Asian markets
Gold is almost 0.5% higher, Oil is over 0.5% higher and regional stocks are also having an 'up' day with the Nikkei +1.5% and the Hang Seng +0.7%.
The FX market has been quiet with only the false break above 81.50 in USD/JPY and some modest corporate buying in AUD/USD worth mentioning.
USD/CAD orders
You know its a slow market when dealers start talking about USD/CAD orders! Buyers at .9965/70 with stops below .9950; sell orders 1.0020/25.
AUD/USD orders: Sellers solid 1.0390/95
The order books are starting to be replenished after the weekend and dealers report solid selling interest 1.0390/95.
USD/JPY: False break above 81.50; market showing more signs of weakness
The break above 81.50 was short-lived and USD/JPY is posting fresh session lows now near 81.25. Bulls will be a bit worried by this price action and we may be in for some more short-term weakness now. I'd look to play an 80.30/81.60 ish range in the near term with a short-term bearish bias but a medium-term bullish bias.
Quiet start to FX trading week
USD/JPY is still sitting just below the vital 81.50 level and this, along with all of the Yen cross pairings, holds the key to today's Asian FX market session. Dealers have mentioned some modest AUD and NZD buying already this morning but all in all, its been a very quiet start.
The Nikkei opens in an hour and will look favourably on the weaker Yen, suggesting that we might get some positive risk sentiment in the regional equity markets to start the week. On the other hand, recent Deutsche Bank research showed that Monday's tend to be risk-off days.
Best to sit back for another few hours and see how early markets develop.