Very quiet start in Asia
No flows of note so far this morning in the twilight zone, with all of the major pairings trading in 5 pip ranges. The first lead of the day will come from the Nikkei and Kospi. Flows at the Tokyo fix should also be larger than usual, given the end of financial quarter.
Risk-reward trade-of-the-day: Buy EUR/JPY
Definitely risky given the risk-events looming in Europe but I think the market may have gotten itself short and the comments from the BOJ overnight will be unsettling these shorts. There is clear technical support at 99.50 and if short-covering sets in, then 101.25 should be easily achievable.
Trade: Long EUR/JPY @100.10 with s/l 99.35 and t/p at 101.25.
Time to play some good defence
There were some excellent opportunities last Friday to enter the market and I feel that the 'easy' money has now been made and it's time to play strong defence with risk events looming.
- Political demonstrations in Europe (or are they riots) are affecting market sentiment:
- Spain will be making some big announcements later today regarding budget reform and the potential need for a bailout:
- The statement from the FinMins of Finland/Germany/Holland still needs to be clarified:
- Overnight statements from the BOJ were a bit more aggressive than usual:
- End of financial quarter asset rebalancing should ensure some heavy flows today.
The one factor which may lead to reduced volatility in the FX market is the overall lack of extreme positioning.
AUD/USD: Time to book some profit me-thinks
I'm still very bearish but I got in at very good levels last Friday so it makes sense to take some profit off the table here at 1.0355 and look for better levels to sell at over the next few sessions. There are large stops waiting below 1.0330 but the 200-day MA is just ahead of there and keeping them safe. If the asset manager buying turns out to be significant then we could be back at 1.0425 pretty quickly. I'll stick with my core short position until Friday as I expect it will eventually fall to the 1.0270ish level.
EUR/JPY: Next key support at 99.50
Seems like we've been talking about key support levels for weeks now and they keep getting broken. The next one is at 99.50 where two previous lows sit, and its closing in fast now.
Asset rebalancing likely to be AUD and GBP positive
Its nearing the end of the financial quarter so we can expect turnover at the London Fix to be much higher than normal as asset managers rebalance their portfolios.
- AUD, GBP and JPY likely to see inflows:
- USD and CAD to see outflows:
- EUR relatively neutral:
- Also don't forget that the Buba usually buys around 1bill EUR/GBP at this time of the month but that's more likely tomorrow.
AUD/USD: Heavy stops rumoured below the market
European bank is saying that macro funds have heavy stop-loss sell orders below 1.0330.
Members information updated
- Flow information updated.
- Both my interbank and hedge fund sources of short-term trades are away this week.
EUR/USD: Next technical support levels
- 1.2835 is the 50% retracement of 1.2500/1.3170:
- 1.2815 is a previous hi/lo pivot point + 38.2% retracement of 1.2240/1.3170:
- 1.2755 is the 61.8% retracement 1.25/1.317 + a previous low:
Cable: Taking some more P off the table
I've booked some more profit on my cable shorts at 1.6173 as I feel that support near 1.6160 should be solid. I will stay with a core short position, now hoping to re-sell rallies back towards yesterday's highs at 1.6265.
Edit: I was just a few minutes too early as more stops triggered below 1.6160, taking it to 1.6150 so far. No matter, I'm still short and I'm sure there will be more rallies from time to time.
EUR/JPY: Next technical support at 99.50
There are two prior lows at 99.50 and that will be a very important technical and psychological support level.
EUR/USD: Stops set-off below 1.2880
EUR/JPY looks like it also set off some stops and the EUR/USD fell 20 pips very quickly in what looks like a pure stop-loss triggering exercise.
My profit target in EUR/USD on the balance of my short position was hit at 1.2882 and I'm now only running cable and AUD/USD shorts (although I did book some partial profit in cable earlier this morning).
Nothing new emerging during Asian trade: NZD the big loser so far today
There have been no new developments over the last few hours, fundamentally or technically, and conditions are likely to stay this way for another two hours until the early Swiss hitters appear.
EUR/JPY is holding above support at 100.20, USD/JPY is unable to bounce despite plenty of willing bottom pickers, the AUD has drifted slowly lower across the board dragged down by a soft NZD, and both EUR and GBP are having a well-earned break.
NZD/USD has been the main mover this session, dragged 50 pips lower by poor economic data.
EUR/JPY support still holding
The most relevant level today in Asia would seem to be the technical support at 100.20 in EUR/JPY that looks like it wants to hold firm yet again. I think we may get an opportunity to buy this pair later today for a quick 100 pip rally so its worth watching closely.
USD/JPY: Hedge funds buying 1-week out-of-the-money calls
It seems some still hold out hope that the BOJ will intervene, especially with Q3 just about to end. A report from Nomura earlier this week said that actual intervention was highly unlikely but I guess it's a cheap bet with a big payout so why not!
Nikkei likely to open sharply lower: EUR/JPY support at 100.20 might be threatened
I just picked up a nice piece of info on Twitter from Chris Weston who says that there are a large number of Japanese companies going ex-dividend which will in itself knock off 73 index points off the Nikkei. Then there is also the weak close in the US which will affect sentiment. (Fed's Plosser said QE might be ineffectual and this drove US stocks lower).
This should mean that risk-trades get slapped in early Tokyo and technical support in EUR/JPY at 100.20 will be worth watching closely. The AUD/USD is already under some pressure so there may be some expectation already written into the market.
EUR/USD: Overall bearish but still susceptible to short-covering bounces
It's very hard to be long either EUR or USD with any great conviction making this pair pretty hard to trade at times. The price action since the announcement of 'infinite' Fed QE would suggest it was a case of buy-the-rumour-sell-the-fact and there looks to be a technical top forming now below 1.3080. That said, recent history shows us that this pair is extremely susceptible to sharp short-covering bounces so we can expect the unexpected and work extra hard to find the right entry levels. Another interesting point is the extremely bullish stance of many of the big banks, who feel 1.35+ is eminently achievable; they're not always right but they are worth listening to.
I sold last Friday's rally above 1.3025 and have already booked 50% of profits near 1.2940. Overall I'm bearish but I prefer my AUD/USD and cable shorts, so I'm likely to cover the balance on another bounce out of 1.2880. In fact I might even consider taking a long position intraday as a hedge against my other short positions, but as always let's see how it develops.