USD/JPY: Favour playing 107.50/110.00 range
The entire world is bullish USD/JPY it seems and many are positioned accordingly. Sentiment will remain bullish whilst the respective central bank policies diverge but with positioning already at extreme levels, pull-backs are inevitable. We are currently experiencing a modest one, after 109.50 was rejected and ex-BOJ Iwata comments spooked some longs.
110.00 is the big optionality level and will act like a magnet on the topside. Downside support should re-emerge near last weeks 107.00/50 consolidation level.
I'd suggest a period of range trading inside of these range edges.
GBP: Mixed signals, neutral bias
- EUR/GBP is definitely still in a strong bearish trend and levels between .75.77 look highly likely in coming weeks. But do I want to start opening short positions at .7850? Certainly not. Sell rallies for sure on all time-frames but there still could be some back-lash from the sometimes acrimonious referendum vote.
- The USD is out-performing the GBP for now and this trend seems likely to stay in vogue for another few weeks. There is a pretty obvious Cable range between 1.6050/1.6520 so I prefer to trade the edges here with a modest bearish bias.
AUD and NZD risk event: HSBC China flash PMI
Most analysts are predicting that the latest HSBC version of Chinese PMI will come in pretty close to 50. Any number below 50 signifies a contraction in the manufacturing sector and numbers above show expansion.
Both the AUD and the NZD remain under significant pressure and they will move again today no doubt, depending on what the data says about the Chinese economy.
- AUD/NZD is stalling around previous daily lows at 1.0925 and longer-term technical analyses would seem to favour a buy-dip strategy. Any short-term rallies will be capped around 1.1100.
- AUD/USD is undoubtedly bearish still. I have gotten this move wrong and am not going to join in now.
- NZD/USD looks like it could test important long-term technical support levels near .7975, so selling rallies still logical play.
JPY crosses open slightly higher after G20 weekend
The lack of any currency-related comment from the G20 weekend will be seen by the market as being moderately JPY negative. The global economy has other things on its mind apart from Japanese monetary policy.
The JPY crosses are slightly higher compared to the NY close from Friday, but movements are very modest in the order of 0.15% on average.
USD/JPY looks like it wants to test 110.00 this week and I see no point in getting in the way.
NZD opens higher after strong election win by ruling Nationals
The focus of the last 2 weeks has been firmly on the GBP but now the market should return to some semblance of normality and the other currencies get a look in.
The first mover of the week is the NZD, which has traded to .8160 against the USD after a strong showing from the ruling Nationals party in the general election. There do not seem to have been a large number of stops in the interbank market at least, so it looks as if positioning was reasonably light heading into the risk event.
I have no strong view but it does look as if AUD/NZD is getting closer to some interesting technical levels and might be worth a buy-dip consideration. I'll have a look at the levels a little later.
GBP starting to settle now that result is becoming clear
The 54:46 YouGov prediction from earlier today looks very likely to come true and the GBP has begun to settle down after a 150 pip run higher against most of the other majors. Will it be a case of 'buy the rumour sell the fact'?
Cable has butted its nose against 1.6520 on at least 3 occasions and failed each time, so aggressive bears can consider selling with stops above there. GBP/JPY has been a very big mover indeed but we really cannot be sure at this stage where the flows are coming from. If its a case of investors who'd been waiting on the sidelines for the uncertainty to pass, then we may indeed see more topside. I'm staying on the fence for now.
GBP: No vote looking very very likely
The GBP has continued to recover over the last 12 hours and the No-to-independence vote looks certain to prevail. There are unlikely to be any major news developments for the next 5/6 hours (polls close shortly) but we can still expect the GBP to trade skittishly.
Keep a close eye on the ticker tape. If the market starts to gap for some unknown reason, then someone knows something we don't.
Good luck and be careful.
USD/JPY: Plenty of headwinds ahead of 109.00
Very large offers were spotted overnight on interbank platforms on the approach to 109.00, confirming that there will be significant defence of barrier options at that level. Bids are likely to be pretty solid now at 108.10/20.
It is risk-off Friday, so we may get some position reduction ahead of the weekend. Perhaps some consolidative range trading for today?
GBP: Was Betfair election pay-out just a marketing exercise
There is some suggestion in the marketplace that the Betfair early pay-out on the Scottish independence referendum was done more out of marketing reasons than on any voting conviction. Pretty good piece of marketing if that was the case!
GBP has rallied strongly especially against the EUR and JPY in recent sessions on the presumption that a No-to-independence is now a foregone conclusion. It might be tighter than people think.
I'm still of the view that trading the GBP is best avoided for the next 24 hours but the big risk is to the downside (in case of an unexpected result).
GBP: Best avoided today unless you are a professional GBP trader
The Scottish referendum voting booths will open in about 12 hours time and we can expect plenty of volatility in the GBP. My sense is that a No-to independence vote is pretty much built in and the market is happy to try buying GBP/USD at levels close to 1.60. This suggests that the market might be a little long and susceptible to panic.
How to trade it? Well firstly, I'd suggest a neutral bias, no clear view. When the market starts to react to certain events/news, we should see some decent trading opportunities as liquidity will be thin and we will get over-extensions. These over-shoots are likely to be more pronounced on any GBP-negative news, as the market is already somewhat long.
Stay flexible, and trade what you see in front of you. Good luck.
FX majors: Levels to watch in today's trade
- EUR/USD: Downtrend re-ignited again overnight post-Fed and we are sitting right on last week's lows at 1.2855. A clean break below here targets a weekly pivot near 1.2750. Price action from the last few days suggests that resistance levels should now emerge near 1.2920/30.
- AUD/USD: Another pair with a nasty reversal lower over the last session and the target is a previous pivot near .8870/90. Similar to EUR/USD, the downtrend is firmly in control and levels near .9020/30 will attract plenty of sellers.
- Cable: Has remained fairly neutral between 1.62/1.63 as the pound makes gains on the crosses in the face of a likely No-to-independence vote later today. Best avoided over the next few sessions unless you are a professional GBP trader.
- USD/JPY: This pair has accelerated after some brief consolidation near 107.00. Any dips towards 107.50 now provide buying opportunities whilst the obvious target will be heavy optionality at 110.00.
Good luck today.
EUR/USD: Small longs in play
I know, I know, I swore off trading for the week after the AUD handed me a beating, but it's impossible to maintain a feel for the market without having a position.
I've taken a very small long position in EUR/USD at 1.2952 and I have a tight stop on this below 1.2900. If a short-term base forms near 1.2940, I will then look to add to the position and add again on a break above 1.3000.
EUR/USD: Bears starting to lose some momentum
The bears have been in total command in EUR/USD over recent weeks but it seems to me that the clever money has been short since 1.35 and is booking profit whilst the late-to-party desperadoes are selling in hope rather than with conviction.
With EUR/GBP and EUR/AUD starting to put up a fight against the 'inevitable' decline, EUR/USD might be one of the more susceptible pairs to a retracement. If it breaks back above 1.30 then we are likely to see some very heavy trailing stops kick in.
I'm always uncomfortable buying breaks but this pair might give a good risk-reward play, because if 1.30 breaks then we will likely see 1.3150 very quickly.
USD/JPY: Little in way of technical resistance until 109.00
The vertical up-trend in USD/JPY is showing little signs of tiredness and we have to look back to the weekly trend-line to find some resistance near 109.00. There is a weekly high at 110.50 and they are the market's next targets. Yesterday saw some quiet consolidation above 107.00 which, after a long bull run, suggests that the market has an appetite for more. There are unlikely to be any trailing stops of note until sub-106.50.
I personally would not chase this move higher. If you missed it, then wait for the next opportunity. But if you're long already, I see no reason yet to panic into profit.
Market taking a breather ahead of Scottish vote
The market took a day off yesterday after some wild and exciting moves last week, but I'd expect the volatility to return over the next few days as we get ready for the Scottish referendum. The 'no-to-independence' vote looks almost certain to carry the day but I personally would not try guessing the outcome and taking a risky position. We are traders, not guessers, so wait for the market to start moving and then look for good risk-reward opportunities.
The next few days are likely to involve plenty of stop-loss hunts, so look for levels where the short-term trailing stops are likely to be. The USD bull trend is the dominant factor in the market at the moment but I'm a non-believer and unable to buy dips with conviction. I might be in for a tough few weeks :(
Have a great day.
Getting it wrong, time to take a break
Hopefully nobody paid me much attention in my recent AUD and CAD trades as they were no good. I've now been stopped out of everything so I will take some time off and re-assess. I don't necessarily agree with the argument that every trader must take a break after a losing run, but I don't have a good feel at the moment so will step aside and perhaps wait for a few intraday opportunities.
It will be a big week for the GBP ahead of the Scottish referendum but it looks increasingly as if the 'no to independence' side has carried the day. The only thing we can be sure of with the GBP is that it will be whippy.
Have a great week.
Model/hedge funds exiting AUD longs as market vols spike
The main driver behind the AUD selling this week would seem to be related to the sharp increase in market volatility.
Model funds and hedge funds had built large AUD long positions across the board in recent weeks and months, while vols were at record lows. As soon as vols started to spike, the position signals would have reversed, and trailing stops would have been set. Once these stops started going off, they started to feed on each other, leading to the AUD rout.
When these events are happening, fundamentals like the strong Australian jobs data are simply ignored.