EUR/GBP still the strongest trend in the market
This pair is definitely oversold on a short-term basis but it's still got quite a bit of downside potential until it reaches longer-term 'neutral' levels near .7500. Reports yesterday from one of the big banks that reserve managers are reducing their overall EUR allocations will only add to the bearish sentiment.
The USD has caught a mild short-term up-swing and I'd expect this sentiment to remain until the next FOMC meeting when we get a bit more clarity from Yellen and co.
The market is slightly bullish JPY at the moment, especially on the crosses. It won't take much to reverse this sentiment as the underlying conviction is still to sell Yen imho.
AUD, NZD and CAD are consolidating at the moment and I'm looking for medium-term buying opportunities in these three.
AUD/USD: Decent selling interest near .9400
It looks unlikely that this level will be tested today unless of course the Chinese GDP data surprises significantly to the topside.
Hourly support levels start around .9330. Pretty hard to argue with a range trading strategy here.
NZD falls after CPI data
New Zealand Q2 CPI came in at +1.6% YoY, which is lower than market expectations at +1.8%. This may influence the interest rate debate over coming months but I'm sure the RBNZ will need to see a lot more data before changing tack.
NZD/USD support levels start at .8700 through .8670.
AUD/NZD is back at it's recent pivot levels near 1.0730.
Overnight re-cap: UK CPI got a Yellen at due to milk prices at a Portugese Bank
- Higher than expected UK CPI saw cable bounce strongly off support levels at 1.7060. The bounce was extra strong as the market had been trying to trigger stops below 1.7055. Pretty hard to argue with the GBP bulls at this stage but I'd prefer to range trade cable for a while, perhaps 1.70/1.73.
- Reports that the holding company for Portugese Bank Espirito Santo would file for creditor protection in Luxembourg came out just before Yellen was due to speak perhaps reducing the effect on the EUR. EUR/GBP was nevertheless the big loser, falling by 1% on the day.
- Yellen didn't really change her tune although there were a few snippets which might give the hawks some hope. Overall the USD is a tad higher and I am of the opinion that we may get a short-term rally in the greenback with EUR/USD to lead the way.
- Finally, milk prices fell quite sharply last night at the fortnightly auction driven by reports of large powder stockpiles in China. The NZD/USD fell quite sharply on a combination of this and the Yellen statement. Next decent support is at .8700.
USD/AXY up across the board in Asian trade
USD/KRW is leading the way, up 0.7% at present, and the USD is having a good day against all emerging Asian currencies.
Still not enough to get the majors moving but that may change once Europe opens properly.
Hilsenrath: Yellen response to job market developments all important
“When Federal Reserve Chairwoman Janet Yellen presented her semiannual testimony to Congress in February the jobless rate was 6.7% and annual inflation was 1.2%. When she returns for two days of testimony Tuesday and Wednesday, she will have a 6.1% jobless rate and 1.8% inflation to report to lawmakers. What matters most in her testimony will be how she explains these developments, particularly the job market’s improvement...
“[It] poses Ms. Yellen with a challenge. The jobless rate is falling much faster than officials expected... Ms. Yellen has said the Fed’s plans for interest rates depend on how fast the economy converges on its goals of maximum employment and 2% inflation. A slow path to those goals implies a long delay before the Fed’s benchmark short-term rate rises from near zero and a fast path to those goals implies a quicker takeoff
Cable: Support levels holding but.............
- EUR/GBP has found decent buying interest on dips below .7950 from EZ corporates;
- Macro funds were noted 'short-coverers' yesterday in the cross;
- Bids were reported late yesterday in cable near 1.7070 but heavy macro stops also below 1.7055.
I will continue to respect the support levels in the cable but with the market already long and with holiday-time approaching, bears will also get their opportunities.
I'd suggest 1.7070/1.7110 for the Asia session.
AUD: RBA meeting minutes main event on today's agenda
Positional adjustment ahead of some risk events was the main story overnight with the EUR making gains on the crosses particularly against the GBP. Lack of momentum is still a major problem in the FX market and with the traditional Northern Hemisphere holiday period just about to start, many players are already reducing their positions.
The RBA minutes for July will be the main event on this morning's economic calendar and given that Mr Stevens has made some important speeches since then, I think it's fair to expect absolutely no surprises.
Cable: Macro stops building below 1.7055
A reliable Prime Brokerage source suggests that we could be in for quite a battle if cable trades down towards 1.7070. There are decent bids starting near there but there are also heavy macro-type trailing stops below 1.7055.
With little else to move the market at the moment, these orders may act like a magnet.
German corporates have been noted buyers of EUR/GBP on dips over the last few sessions and this may add to downside pressure on an already long GBP market, if it persists.
USD/CAD: Looks 1.06/1.10 consolidation with bearish bias; strong tech resistance 1.0810
For what seems like the first time ever :) I've been picking the USD/CAD pretty well in recent weeks and long may it continue. According to most Prime Broker reports, the big CAD shorts which had been building up this year have been almost entirely unwound and that should mean that we see good two-way trading in USD/CAD in coming weeks, albeit inside well established ranges.
I'm sticking with my overall bearish bias in USD/CAD but will wait for levels above 1.0900 before I start selling again. Bulls will undoubtedly be tempted by the risk-reward ratio in buying on any dips back towards 1.0650.
Next very strong technical resistance is at 1.0810.
CAD/JPY: Important support levels nearby 94.10/20
There are some very important technical support levels close by in the CAD/JPY, one of last week's biggest movers.
Technicals don't work very well in momentum-less markets but with 4 support points roughly around 94.10/20, it's definitely worth watching.
Federal Reserve: Market closely watching Yellen for signals
The recent statements from the FOMC suggested that whilst tapering is underway, rate hikes are not on the agenda. But, an article over the weekend from well known Fed watcher Hilsenrath at the WSJ opines that improved jobs data could encourage the Fed to start hiking rates sooner than planned.
Janet Yellen will front two separate government panels this week with prepared statements, but the Q&A afterwards might give us a closer insight into whether their thinking has changed or not.
Will we get some 'normality' now the World Cup is over?
We can only hope so! Another very quiet start to the FX trading week but that's understandable, given that all eyes were probably on the football final in Rio. I seem to recall that the market gets a pick-up after a big sporting event like the Olympics or World Cup finishes, let's hope that's the case this time.
The main questions to be answered this week are:
- Will the medium-term CAD slide re-commence or was Friday's move simply a retracement/consolidation of the short-term trend;
- Will the GBP top out in the short-term;
- Can the NZD keep on rallying and break above .8850 against the USD?
More questions than answers at the moment.
Have a great week.
Pack up your screen and enjoy the weekend
Unbelievably quiet in the FX market this morning in Asia. One would have thought that events yesterday in European trade would cause some minor ripples through today's session but nothing has happened.
I'm very much afraid that this indicates a complete lack of positional exposure in the market and a total reluctance to take on any fresh risk. Back to 10/15 pip session ranges!
AUD/JPY: Initial resistance at 95.15
Previously strong support levels at 95.15 broke yesterday afternoon and we are now sitting right on this level again. If the market is long and nervous, these resistance levels should now hold.
EUR/JPY: Should be main focus during Asian trade
- There were a few scares running through the EUR over the last 24 hours;
- Global equity markets ran scared for a while after developments in Portugal;
- Bad news begets bad news, and there was also talk that Greece had only partially placed a 3-year bond.
As we know, in the FX markets it's extreme positioning which drive the big moves and any extreme positioning in EUR/JPY is likely to be based in Japan and is likely to be long.
I'd suggest playing EUR/JPY from the short side for the first half of the Asian session and if it doesn't move before then, give up and enjoy the weekend.
TGIF :)
AUD/JPY: Strong technical case for bears now emerging
It's hard to get too carried away by any movements in the markets based on recent experiences but the AUD/JPY set-up is looking decidedly bearish. There is a potential double-top forming just above a 50% retracement level and short-term bearish momentum will pick up with the break below daily lows at 95.25 as well as the 50-dma.
Shorts favoured for now on virtually every time-frame with further stagnation being the obvious enemy.
AUD/NZD: Look for sell opportunities especially if .8850 breaks in NZD/USD
I know it's silly to be talking about selling the AUD/NZD at these historically low levels but most indicators seem to be pointing lower.
- NZ interest rates are headed higher whilst we still could have another rate cut in store for Australia;
- The Australian mining industry continues to cool but the New Zealand dairy industry consolidates recent strength;
- Recent economic data in Australia does not give rise to much hope of a sudden resurgence.
If .8850 breaks in NZD/USD, then I will look for good entry levels in AUD/NZD.