Spanish PM on the newswires: Many opinions on possible bail-out
The EUR has dipped slightly on the Dow Jones headlines: sustained high yields would lead to bailout; doesn't rule out possible bailout request.
Market isn't quite sure how to react but overall bearish vibe still holding sway.
Only HKMA active today amongst Asian central banks
Not sure yet how much they bought at 7.7500 but they seem to have plenty of capacity to soak up all the selling. USD/SGD and USD/KRW are trading moderately above their recent intervention levels at 1090 and 1.2200 respectively.
USD/JPY: More stops below 79.90
I thought we might be done but seemingly not, with more stops reported below 79.90.
(Edit) EUR/USD: Also now hearing that market is targeting tight trailing stops below 1.2780 but US player is stubborn buyer just above that level.
EUR/USD: Analysis for European open
This is the latest analysis from Chifbaw.com and you can visit their website for full details.
Recommendations:
- Buy EURUSD in between 1.2750/1.2735 , SL below 1.2720 with targets 1.2770, 1.28, 1.2850.
Paradigms:
- The EURUSD will not make new highs (higher than 1.317) until Spain requests a bailout and the OMT is activated.
- The dollar will tend to strengthen at least until the US elections, and possibly after it.
Analysis:
Yesterday the market continued its downtrend in EUR/USD and confirmed that the 200DMA has been broken. The market is nervous about Greece and the stability of its parliament. In parallel, the absence of a Spanish bailout request is increasing the likelihood of a Spanish downgrade by the rating agencies. If Spanish bonds are rated as junk, Spain and its banks would fall into turmoil (very bearish). But for now, the markets are only slowly starting to price this potentially catastrophic event. Spanish bonds went up yesterday, but remain within the safe area. A move above 6% (above the upper Bollinger band, see chart) would confirm that the sovereign crisis is back to the main stage and would enable a move in EUR/USD as low as 1.24 and potentially below should other issues arise. The market is slightly bearish this morning but a rebound is imminent. Technically, the EUR/USD is in a downward channel and buying today moves towards 1.2750/1.2735 (the bottom of the channel, 61.8% Fibonacci retracement) will provide a low risk trade since the market will probably return towards 1.2770/1.280.
Asian market overview
- RBA keeps rates on hold, market now pricing in 65% chance of cut in December:
- Reserve managers reportedly raise bids in AUD/USD from 1.0290 to 1.0350:
- AUD rallies strongly after decision, approaching important levels in crosses like 1.2220 in EUR/AUD and 83.60/70 in AUD/JPY:
- AUD/JPY selling coupled with AUD/USD buying forces USD/JPY lower, triggering weak trailing stops below 80.10 and 80.00:
- Focus now turns to US election and Greek parliamentary vote on latest austerity measures.
USD/JPY: Looks like most of weak stops now done
Those trailing stops below 80.00 have been done so now we've gotta figure out where the next batch is, up or down; sad but true.
EUR/USD tends to move sharply on London open
Very recent history, ie the last few trading sessions, suggests that EUR/USD is likely to go for a sharp 40 pip move in early London trade. The last few moves have been down so the law of averages would suggest that we are in for a rally today. Not very scientific I know, but I'm struggling to get any strong feel for these markets.
EUR/AUD: Should be worth a risky intraday long near 1.2222
There is a minor daily low at 1.2230 and a 50% retracement at 1.2220, so if you like all the twos, it might be a nice intraday trade to buy near there for a quick 50 pip spike?
AUD/JPY selling interest ensures USD/JPY stops get done
Decent-sized selling interest in AUD/JPY near 83.60, coupled with a bullish AUD/USD, has ensured that some downward pressure was exerted on USD/JPY, enough to trigger trailing stops below 80.10. Next batch sitting below 80.00 I'm told.
AUD/USD technicals: Scope now to test top of weekly wedge
The bulls seem to be back in control here at the moment and there is scope for a move towards the top of the weekly wedge near 1.0600.
There will be a Green Moon before that horse ever wins a Melbourne Cup!
Yep, I said that this morning. I also said the RBA would cut rates. A reverse indicator is also useful!
AUD/USD: Reserve managers now likely to raise their bids
Reserve managers had been sitting on the bid just below 1.0300 but with only the AUD delivering some yield in an otherwise 0% world, we can expect bids to be raised to 1.0350 at least.
Bears like myself are getting squeezed and it looks like a cover-on-dips play from here.
AUD/USD testing offers after RBA no move
The high so far has been at 1.0415 as the RBA decides to leave interest rates on hold. Dealers say offers are still very solid and the move higher is caused by shorts covering rather than fresh longs being initiated.
AUD/USD order boards heading into RBA
- Modest bids in AUD/USD still around 1.0330 with heavier interest 1.0290/95:
- Offers starting at 1.0390, getting heavier 1.0420/30; rumours of large stops above 1.0430:
- AUD/JPY; stops anticipated above 83.85:
Market getting more unsure about prospects of RBA easing
Yesterday the market was putting then chances of an RBA easing at 56% whereas today the chances are seen at 44%. Not sure what's happened in the meantime to change peoples' opinions. I'm sticking to my guns, I think they will cut by 25bps and will add in some AUD-negative language, sending AUD/USD back below 1.0300 (talking my position as usual!).
Australian house price index only +0.3% despite interest rate cuts
Falling interest rates are not having the desired effect in the housing market, with house prices virtually stagnating. It's also interesting to note that in the last month since the RBA cut rates, the AUD has risen by almost 1%.
USD/JPY: Stops reported below the market
I can't believe that the stops are overly big or otherwise the market would have targeted them already. The levels to watch are 80.10 and 80.00.
Asian FX market open, Tuesday November 6th
You can click through here and read my opening comments on FX Street.