Intervention continuing in Asian currencies; should be EUR/USD positive over time
The MAS bought around $2billion on one day recently at 1.2200 and have been regularly intervening in USD/SGD and today the HKMA announced that they bought almost $2billion USD/HKD in a 4 day period. They are of course not alone in Asia and many of these USD purchases will be recycled into EUR/USD particularly but also into GBP and AUD, CAD etc.
Some bank analysts changing their RBA forecast
The majority of bank analysts still seem to be coming down in favour of a 25bps rate cut next month but after CPI numbers came in higher than expected and Chinese data also improved, some are saying now that the RBA might hold off until December or even February.
Reports of 2-year extension for Greece
Risk trades and the EUR getting a boost from these reports but a German FinMin official won't comment, saying we must wait for Troika (Dow Jones).
USD/JPY: Hedge funds building longs but sellers heavy at 80.00
One of the biggest prime brokers reported overnight that Yen shorts are at extreme levels. Obviously the speculators are hopeful that the BOJ will implement more heavy easing but corporates and real money funds don't seem convinced, as they are selling rallies in size (3 billion reported yesterday above 80.00). Trailing stops now seen building below 79.50.
Yen crosses are probably also vulnerable.
AUD looks to improved Chinese data
Improved Chinese data and sentiment is helping the AUD to hold at session highs near 1.0320. I'm happy to sell into rallies for the moment as I pay no credence to Chinese data anyway. Let's see what the Europeans think.
AUD tries to rally but sellers solid above 1.0300
Not many people playing after the numbers with AUD/USD running out of steam above 1.0300. Dealers say interest is quite light so expect tight ranges until Europe comes in.
I'll be back a little later for the European open.
Quick look at EUR/USD and USD/JPY
- USD/JPY is still holding up well despite huge offers at 80.00 and trailing stops building below 79.50. The hedge fund market is aggressively buying but it remains to be seen whether they have the patience or firepower to take it higher. The Yen crosses will be most impacted by AUD/JPY around the time of the CPI number. The easiest trade opportunity seems to be, wait for market to take out all the sell orders above 80.00 in USD/JPY and when everyone is full and bloated, sell for the inevitable dip.
- EUR/USD will be mainly impacted later today by developments in the German Bundestag when ECB Chief Mario Draghi speaks before the House. In the meantime I expect tight range trading to prevail between 1.2950/1.3020.
AUD/USD: What to expect from the day ahead
I don't want to get caught up in guessing what the CPI number might be, of course its important and will have an effect on next month's RBA decision but to be honest the market will have forgotten it by this time tomorrow. What I did find very interesting yesterday was that macro funds were selling AUD/CAD again, so whilst positioning was being reduced for some weeks obviously there is still plenty of scope for AUD bearishness. Perhaps they are like me; I'm short and bearish overall but I have only got a relatively small position and was hoping for better opportunities to sell at. The overall professional market could be the same; a bit short but keen to sell more? If that's the case, then the bearish sentiment could return and we could start seeing the market gap lower as bears start chasing?
It's probably unlikely that we see any big moves today but I prefer the sell-rally strategy, with initial resistance at the previous pivot near 1.0310/20. Corporate bids are reported near 1.0230 and they will slow down initial sell-offs.
Asian market open, Wednesday October 24th
You can click through here and read my opening comments on FX Street.
Very slow going in early Europe; best we get used to this!
I'm afraid that we may be in for extended quiet periods in the market and its hard to know where the volatility is going to come from, if its not stop-loss driven.
EUR/USD has run out of bearish momentum after 30 pips which is a sad reflection on the market overall. Whatever happened to the good old days, up 100, down 200, up 100, back to where we started! Then start all over again. Sometimes it feels like we'll never see them again.
No obvious trades staring me in the face at the moment, so best wait until the lights come on again.
Cable: Sovereign buyers reported starting at 1.5970
These buyers have been very patiently sitting at the same level for quite some time now and the bids are still in place. If the EUR/USD stops are tripped below 1.3000 then cable will probably test these bids and AUD/USD will also test it's support line near 1.0280.
EUR/USD: Plenty of downside stops now building
Last week we were in stop-loss hunting mode on the topside and I expect the market to continue in the same vein, although the direction might be different over the next few days. Dealers tell me that most of the natural business (asset managers, corporates) are looking to sell near current levels (1.3080/1.3120) whereas the short-term speculative market is tending towards being long and there are trailing stops building below 1.3000.
If that's the case then the market will gradually tend lower and test those stops over the next few sessions, in my humble opinion of course.
I'll be back in a couple of hours when hopefully the Europeans will liven things up.
What to do now the debate is over?
CNN polling has 48% calling Obama the winner and 40% calling Romney. Based on this, we have two possibilities in the FX market:
- A. Start trading exotic options in NZD/CAD.
- B. Do nothing.
I think I'll opt for C.
Japan FinMin denies reports that government is pressuring BOJ for more easing
Headline on DowJones; this might see the Yen crosses drift a bit lower.
Cheap trade of the day
I have no strong views at all this morning but a friend of mine who's an excellent AUD trader reckons that if AUD/USD falls to 1.0280 and cannot break through, then we can buy with a tight stop looking only for a swift 40/50 pips. Sounds like a reasonable plan to me.
No need to adjust your sets, nothing going on
Check back in an hour and see if anything's started moving, in the meantime get those unwelcome chores out of the way.