JPY crosses: Profit taking and trailing stops
The professional market has been short JPY across the board and we saw some hefty profit taking emerge yesterday after the over-stretch to take out 110.00 USD/JPY barriers couldn't be maintained. Other pairs like GBP/JPY broke out of holding patterns and triggered heavy trailing stops.
In the shorter-term, I prefer selling any 50/60 pip rallies in USD/JPY as I expect that we may get some 108/110 consolidation for a few days.
If you're looking for a bit more volatility, then GBP/JPY looks like it might offer the bears some decent opportunities.
Sticking to the crosses for some shorter-term opportunities
My longer-term fundamental view remains unchanged, the EUR, JPY and USD will struggle amid CB easy-ness and the commodity currencies will strengthen over time. The market has started buying USD in the mistaken belief that the Fed will significantly change its policy direction. We will see small changes, but no directional change. This is probably enough to ensure some USD strength against the EUR and JPY (and we've seen a lot already) but will not be enough to ensure longer-term USD strength against the GBP, CAD, AUD etc.
So whilst we are waiting for this USD bull trend to run its course, we should find some decent trade opportunities on the crosses:
- Already this week on the NZD, we saw an illogical sell-off on verbal intervention and small scale intervention reports. That gave us some decent NZD trade opportunities on the crosses, especially EUR/NZD, if you were quick enough to pick up on it;
- Yesterday's EUR/NOK move showed that EUR weakness still has a way to go;
- Cable is consistently failing to generate any strong bullish momentum and surely a test of 1.60 is highly likely? With strong NZD/USD support at .7700 and USD/CAD resistance at 1.1270, there should be good opportunities to short GBP/NZD and/or GBP/CAD over coming days, if only for quick 100 pip plays.
USD/JPY barriers: One down one to go
A large barrier at 109.75 has been knocked out so we can turn our attention to the next one at 110.00. This one will be even bigger I hear, but it seems inevitable that it too will be knocked out, maybe not on the first attempt though?
Cheap trade of the day; sell at 109.95 with 15 pip stop and 30 pip take-profit. Rinse and repeat.
Cable: Fresh short-term lows mean bulls will have to wait another while
Nice try earlier from the cable to break above technical resistance at 1.6280/90 but the nasty move lower in EUR/NOK caught the overall market unawares and that's had a knock-on effect on the GBP as well.
Fresh short-term lows have been printed below 1.6200 and more downside looks like the most likely short-term outcome.
Cable: I'm getting tempted to buy again
The one currency which seems most likely to appreciate quickly once the USD bulls get tired is the GBP, in my view. There hasn't been too much of a bounce thus far in cable but I have been on the look-out for a short-term base to form. The price action above 1.6200 will be giving the contrarian bulls some modest hope.
I'm certainly not going to buy in here at 1.6240, but if the market can start making fresh short-term highs above 1.6290 then I will start buying dips with stops below 1.6200. I'm not expecting a huge move, but perhaps a 300 pip relief rally might be in order? Let's wait for some confirmation of a base first of all.
USD/JPY: Market still eyeing big barriers ahead of 110.00
There were plenty of reports in the FXWW chatroom yesterday of very large offers at 109.74/75, protecting an option play at 109.75 (the market needs to trade through the exact level in order to trigger the pay-out). There will be another possibly even bigger barrier at 110.00.
USD sentiment remains buoyant and further attempts to take out these levels seem inevitable.
Personally I'm waiting for a reversal opportunity if/when we get an exhaustive spike.
AUD/USD: Technical support looming at .8660
The lows from January at .8660 are coming into view for the AUD/USD and they might encourage some bouts of profit-taking from those clever traders who've been short since 93 cents. AUD/NZD might also catch an up-draught after the comments and reports out of New Zealand.
Contrarian bulls should keep their pencils sharpened, just in case support levels hold.
Protests in HK will disrupt market activity
Live pictures this morning from Hong Kong show masses of people sitting-in all around the CBD. This will surely have some continued effect on stockmarket activity in particular.
Weekend industrial profits data out of China was pretty disappointing so the risk-off card may be the one to play in today's FX market sessions.
NZD/USD: Longs stopped out on Friday night
I don't know why I'm so surprised at getting my levels so comprehensively wrong, as its happened many times before, but I am. The insanity of the trader I guess, always thinking I'm right.
At least I had the good sense to dramatically reduce my risk so the stop-out in the Kiwi was more of a blow to my pride rather than my pocket.
I'm square across the board so its back to basics again, watching the market with an open mind. Have a great week.
USD/JPY: Optionality, trailing stops and risk-off Friday
- Another failure to test optionality at 109.50 will have longs questioning their resolve.
- A quick look at the 4-hr chart shows exactly where the trailing stops will be, namely below 108.25.
- It is risk-off Friday, so we may see some of this week's positions taken off?
Cable: Longs preferred for move back towards 1.6475
I tend to favour the range-trading consolidation theory for cable in the short-term, as it comes to grip with the post-referendum world. The GBP still looks good on the crosses with EUR/GBP looking likely to test important levels near .7750, so all it will take for the cable to rally is for the USD bulls to take a few sessions holiday.
1.6275/1.6515 are the obvious range edges and with support holding again overnight, I favour the buy-dip play intraday.
NZD/USD: Still long, lets see how it finishes the week
Like I said yesterday, I've not been calling the market very well so I'm keeping risk pretty tight until the lights come on again.
This is the NZD/USD weekly chart I've been watching and I'm looking for levels near .7900 to hold. If we finish the week on the .78 handle, I will exit the trade and look again.
NZD/USD: Testing waters with small long position
- AUD/NZD is testing short-term resistance levels near 1.1060
- NZD/USD has important longer-term technical support between .7930/50.
I'm testing the waters with a long position near .7970. I'm keeping risk pretty tight as my recent track record is quite poor.
AUD/NZD: Range trading 1.0920/1.1060 likely for next few sessions
Like most FX pairs, and perhaps even more than most, AUD/NZD spends the vast majority of the time range trading. We really should not be trying to pick the trending direction, rather we should be picking the range-timing and the range edges!
We are now in a short-term range-trading phase and I'd suggest that 1.0920/1.1060 will be the levels to watch.
GBP/CAD: Nasty reversal after failure to trigger stops above 1.8200
I mentioned those stops yesterday above 1.8200 in GBP/CAD and the market had a real go at trying to trigger them during European trade. As can be seen from the subsequent down-move, stop-triggering can also be a dangerous practice and I'm sure some dealers were left sitting on large longs at the top of the market.
I'm afraid that I've still got no feel whatsoever for these markets and it will once again be a matter of grinding through this down period, with very small positioning, until the lights come on again.
Cable: Price action feels bullish
I should temper that by saying that we need to be very careful with our entry levels, as seen by the nasty 80 pip dip yesterday during early European trade. Overall the GBP looks to be coming back into favour, especially on the crosses, so buying dips on cable makes sense to me.
I'd suggest a wide and volatile 1.6250/1.6600 range over the next week or so with a definite buy-dip bias. On a more short-term basis, I favour buying near 1.6345/50 for a test of 1.6450.
NZD: Fonterra cuts forecast milk payout
Fonterra, the big NZ dairy company, has cut it's forecast to NZ$5.30/kg from NZ$6.00/kg. This had been widely expected by the market.
NZD/USD had taken out the important .8100 support level prior to the announcement and fell another 30 pips to .8040 before stabilising.
- NZD/USD technical support should be very firm around .7935 if it does break below the psychologically important .8000;
- AUD/NZD should now consolidate in a 1.0920/1.1020 range.
AUD/USD: Large option expiries at .8900 today
From the FXWW chatroom:
About 900mln worth of 89 cent AUD/USD option maturities today.......overwhelming amout of puts ..........a lot of people will be short at 89 cents.........or maybe not