JPY crosses again the focus of volatility
Jittery stock-markets and tumbling commodity prices ensured that the JPY crosses had a volatile week and I think we can expect more of the same this week. In terms of volatility that is; I'm really not sure which way they go but pairs like GBP/JPY and CAD/JPY should see plenty of two-way action.
The big events this week include US CPI, UK retail sales and MPC minutes, EZ PMI data, Australian and NZ CPI, and the BoC rate decision. The FX market will follow leads in US yields and oil markets.
I have no strong view at the moment and will wait and see how markets develop.
AUD/JPY: Looking bit 'bottomy' on short-term charts
Whilst the recent trend has at times been violently bearish, and it is risk-off Friday as well, the short-term charts are disagreeing and look a bit oversold to my contrarian eye. I'm pretty sure that we will get some movement here today and I'm thinking of starting small with a mild bullish bias whilst the pair stays above 92.70ish. Any early rallies will run into resistance at 93.50, so that looks like the initial range to play.
Look for quick opportunities in the crosses when volatility gets extreme
In my view, most of the recent action has been related to positioning and sentiment in the USD and in the JPY crosses. Yet when the proverbial hit the fan yesterday, we saw big swings in pairs like EUR/GBP and AUD/NZD which are basically unrelated to the bigger picture events. These swings are generally reversed once the market settles down, so the more risk averse trader can sit back and wait for these opportunities to develop.
Back to the good old days of intraday volatility
Well here's hoping at least. Price action over the last 24 hours has really taken me back in time. We had wild swings up and down in virtually every pair and we were spoilt for choice regarding which pairs to trade. The main questions for me were regarding the USD and the JPY crosses but it was less about picking overall direction and more about trading the big intraday swings.
During the Asian session, AUD/USD and AUD/JPY look like the pairs to be trading whilst during European trade you can substitute the EUR or GBP for the AUD. The CAD comes into the reckoning during North American trade and there is plenty of volatility to please everyone.
Risk-reward and recent trends suggest to me that there could be more downside potential in the JPY crosses but I'm keeping an open mind. Good luck today and TGIF.
"Whenever I think of the past, it brings back so many memories." :)
EUR/USD: Pick a wide trading range from here
Somewhat of a train wreck overnight for EUR shorts across the board and the market was obviously overly positioned. The fundamental back-drop for the EUR remains bearish so I think we can still sell any big rallies but short-term sentiment will have shifted somewhat after last night's rally, so dips will also be sought-after.
In EUR/USD, I'd suggest a wide 1.26/1.30 range over the next few weeks, presuming other factors stay the same. In EUR/GBP I think we can look for some more medium-term selling opportunities, but need to watch the price action for a while.
USD/CAD: Exiting short position with a black eye
I did manage to buy some AUD/USD yesterday on the lows after Peter's Sovereign tip in the FXWW chatroom (thanks Peter, owe you a coffee :) ) and thankfully that has offset my pathetic USD/CAD trade, which at least is 100 pips lower than it was yesterday afternoon. I'm taking my loss in the Loonie and will reassess.
I have a feeling that we will be in for some choppy volatile markets from now until Christmas so I will revert to playing the 'hit-and-run' game, looking for overstretched markets and keeping my opinions out of it.
CAD/JPY still the FX market's favourite 'oil price' play
Oil prices have been falling very heavily in recent weeks and the FX market's favourite proxy trade for crude is CAD/JPY; one economy heavily reliant on oil exports and the other heavily reliant on oil imports.
This pair is over 4% lower in the last 2 weeks and we are fast approaching important technical support levels around 94.00. If they crack, we could be headed back towards 90.00.
AUD/USD: Sovereign buyers related to new bond issue
Once again the Sovereign buyers appeared in force when the AUD/USD dipped to .8680 and market chatter suggests that this is related to the new 2037 Australian bond issue. Sellers are also noted close-by near .8725/30 so we may be in for a short stint of range trading.
AUD/USD: Looks set to test .8650 yet again
AUD/JPY has been the main driver overnight and levels above .8800 didn't last long in AUD/USD. The overnight lows were around .8693 and interbank sources report that solid bids appeared near there.
.8650 is major support on the weekly chart and it has held firm on two separate occasions this time around. One would suspect that the AUD bears will have another crack at this level but much of today's intraday action will depend on what happens in USD/JPY and the JPY crosses.
Risk-reward would seem to favour the .8650/.8820 range staying intact, so buy any 30/40 dips with stops below .8640 looking for a quick 80/100 pip rally.
FX market focus remains on the JPY crosses
There were plenty of reports in the chatroom on Monday morning of large stop-loss orders on the down-side in the JPY crosses and it looks like the first part of this week has been spent trying to trigger these orders. GBP/JPY and CAD/JPY look to have been two of the bigger movers. Whilst there is certainly a hint of risk-aversion in the air, this looks like a typical squeeze of longer-term positions and their trailing stops.
EUR/JPY has broken below important support levels at 135.50 and USD/JPY is still being stalled by Fibo support at 106.80. If these levels continue to hold, then the downside pressure on EUR/USD should increase significantly.
USD/JPY: More risk aversion in late North American trade
Reports from Boston airport that an Emirates flight has been fully quarantined due to sick passengers has caused another bout of risk aversion across illiquid financial markets. Stocks fell heavily into the close and the USD has also been hit, especially against the JPY, with the 106.80 technical support level currently being tested.
USD feels toppy, and sooner or later I'll be right!
- USD/JPY has been surprisingly leading the way in recent days after the rejection of 110.00. Technical support is quite strong around 106.75 but if we start spending any length of time below there, the bulls will get worried.
- AUD/USD has again bounced strongly off .8650 with the help of decent buying from Asian Central Banks. The market is short of this pair.
- EUR/USD really smells like a turn could be in the air. The market has been very bearish and is now presumably very short. I think we are more likely to see a 1.30 test rather than another 1.25 test.
I think the recent USD rally has been overdone but be wary, my recent timing has been very poor indeed.
Quick update on early morning flows/activity
- USD/JPY stops were triggered below 107.35 and AUD/JPY stops were also targeted and tripped below 93.00;
- AUD/NZD stops were triggered below 1.1100 and at various levels below but solid bids emerged 1.1070 to stem the bleeding;
- EUR/JPY support levels held near 135.50/60 and this caused a modest jump in EUR crosses, EUR/AUD in particular;
- Elsewhere, Gold rose by 0.7%, crude oil is -1.2% and S&P futures are -0.6%.
From the FXWW chatroom.
Fairly quiet start to FX trading week
- Japan and US holidays today
- China trade balance data released later this morning
- Plenty of stop-loss orders reported on the interbank books, particularly on the downside in the JPY crosses
- Big level to watch this morning will be .8650 in the AUD/USD.
USD/CAD: Still short but.............
I'm a little out of the money on this trade but after a few decent intraday trades on Friday, my average does look a little better. I don't believe strongly enough in this trade to take a big risk, so I will monitor early in the week and definitely exit above 1.1270. We may also get clues from other pairs, and if AUD/USD smashes below .8650 then I will almost certainly get out of the Loonie and re-assess.
AUD/USD: Long position well and truly obliterated
Another forlorn attempt by me to pick the base in the AUD/USD has come to nothing and the spate of negative events (tumbling iron ore prices, Chinese coal tariffs, dodgy jobs data etc) are all taking their toll on the little Aussie battler. I'm far from a believer in the AUD bear story but it's best get out of the way whilst they are in charge. The risk-off events affecting the Equity markets have also taken a large toll on AUD/JPY, and many macro long positions have thrown in the towel here also. AUD/JPY does bear (pardon the pun) close watching and the long-term charts suggest to me that a break below 91.00 could lead to another 10 big figure clean-out.
There is a hugely important technical support level in AUD/USD at .8650 and if we break below this level, there will be bull-blood on the streets.
USD/CAD: Shorts still in play
My short position from yesterday is still in play although well out-of-the-money. I remain bearish and am reluctant to change my view, so close to recent highs at 1.1260. On the other hand, I need to be sensible and accept that the bulls have been in control for quite a considerable time.
I'm on a watching brief here and am also watching pairs like CAD/JPY closely, given the big moves in the oil market.