AUD: Australian unemployment rate 6.0%; economy added 15,900 jobs
Market had been expecting an addition of 12,000 jobs and a jobless rate of 5.9%
USD edging lower across the board in early Asian trade
The NZD/USD is edging higher towards important technical resistance at .8845, AUD/USD is back at it's recent pivot level near .9425, and the other majors are taking the lead and making small gains against the USD.
USD/JPY still looks like the most likely of the major pairs to go for a big run, and I'm still of the view that the downside holds more short-term risk. There are certain to be large stops (partuicularly from option players) below 100.70 and we may grind slowly towards there over coming days.
Likely intraday ranges for Asian session, July 10th
Based on recent history we can expect more tight ranges in Asia with the NZD offering the best possibility for some volatility:
- USD/JPY: Unlikely to move more than 15/20 pips in either direction so 101.50/80 should cover it;
- EUR/USD: Short-term market still reportedly short so more likely to go up than down imho but 1.3630/60 is unlikely to break in Asia;
- Cable: Still very bullish but won't move during Asia unless GBP/JPY goes on a run, 1.7140/70;
- AUD/USD: Bids reported now at .9385 provides obvious support point and the previous resistance at .9425/30 is now relevant again;
- NZD/USD: .8845 is clear topside target and dips should be limited to .8775.
NZD/USD: Market focusing on .8842 highs
- The post-float highs from a few years back at .8842 are coming clearly into sight and this will give the market something to aim at today.
- AUD/NZD has decent chart support between 1.0640/50 which is also worth watching.
- NZ business PMI data due in 30 minutes.
Hedge funds adapting, trading increasingly small ranges
It's a case of adapt or die in the hedge fund space and professional traders are being forced to trade increasingly tight ranges in order to try and deliver their monthly returns.
The ranges in the Asian time-zone have been very tight in recent months and we are now seeing big hedge funds trying to trade in-and-out of the market for as little as 10 pips. Desperate times call for desperate measures! Banks and Prime Brokers are pumping these professional players with as much flow and technical information as they can, desperate to keep a stagnant market trading.
I think we can (unfortunately) expect these quiet conditions to continue until the Northern Hemisphere holiday period ends in mid-September.
UK economy: BRC survey shows large drop in annual prices
UK retailers say that prices fell by 1.8% in the year to June which would be the biggest annual drop since 2006.
Such data is certain to have an effect on the interest rate debate in the UK.
Coming on the back of slightly disappointing industrial production data yesterday, this might be enough to tempt some of the many GBP longs in the market to book some profit?
USD/JPY looking most likely of majors to make big move
- Larger positions will tend to get increasingly nervous the longer a currency pair trades in a sideways formation;
- Plenty of large JPY-short positions have been built up over the last 18 months, particularly from Japanese investors;
- USD/JPY hasn't risen in line with global equity markets;
- Technically, a break below 100.70 would suggest that the holding pattern is broken and that we will move lower onto a new plane.
That said, anyone who has traded the range in USD/JPY over the last 6/9 months will have made a lot of money and we may well stay in this range for some months to come. But, if we do get a break, I think it will be lower and there will be a lot of macro stops now sub 100.50 and especially sub 99.75.
USD/JPY: Favour selling intraday rallies to 102.15/20
I quite like the risk-reward in selling near 102.15/20 with stops above 102.90, targeting a move lower to test important technical support at 100.70.
Professional market staying very bearish on EUR
- Citi FX strategy 'trade of the week' is short EUR/USD;
- Morgan Stanley 'trade of the week' is short EUR/JPY;
- I have not spoken to one professional trader over the last 3/4 weeks who is bullish EUR.
Make of that what you will. I must say, I agree with all of the above but perhaps we first get a topside clean-out before the next down-leg commences?
NZD/USD trading lower in early Asian trade
It looks like off-shore sellers, probably Japanese, are behind the fall in the NZD over the last hour or so. None of the local banks seem to know what's going on and seeing as the selling started around the time of the Tokyo open, this suggests that the selling is coming from that direction.
There are also likely to be weak trailing stops below .8715 hourly lows and the market could well be chasing after them.
One professional NZD trader told me this morning that he prefers the short side intraday and it's usually very worthwhile listening closely to professional traders who make a living trading a specific market.
Cable: Outlook for the week ahead- suggesting 1.7075/1.7325 range
- BoE likely to be somewhat of a non-event this week and industrial/manufacturing data expected to show continued solid performance;
- Fed minutes will have an obvious impact on the USD side of the equation;
- Cable tends to trade around 150 pips in quiet weeks and 350 pips in busy weeks;
- Splitting the difference, and maintaining the bullish bias, I'd suggest 1.7075/1.7325 for this week's range.
EUR/USD: Favour selling rallies keeping stops above last week's highs
- EUR crosses continue to look very heavy and the weekly close below .8000 in EUR/GBP certainly strengthens the bear's case.
- EUR/NZD is in a solid downtrend.
- EUR/JPY is still the great unknown; will the medium-term up-trend re-ignite or will longer-term Japanese investors be forced out of EZ assets through a move lower in the EUR/JPY cross?
- EUR/USD has a definite bearish feel to it and the market is really keen to sell imho (but avoiding it due to lack of momentum).
I will look to sell any intraday rallies back towards 1.3650 and see what happens from there.
Another very quiet start to the week but volatility slowly increasing
It's been another very slow start to the interbank trading week with most of the major pairs hanging around Friday's closing levels. There are no major economic events in Asia until the Chinese inflation data on Wednesday and of course the market will be hanging on the Fed minutes later the same day.
Nevertheless, volatility is slowly starting to creep back into the market and I have a feeling that it will be the EUR that ushers in the next big market movement (I'm presuming that it will fall heavily across the board).
The GBP continues to make fresh highs and the NZD/USD is consolidating just below post float highs. AUD/USD is range bound as is USD/JPY.
Currency hierarchy becoming clearer
Well at least it is with respect to what I will call the 'strong' or carry currencies:
- GBP: It's big, it's European, the economy is improving, rates are likely to head higher etc etc. Number 1 with a bullet! Targeting a move to .75 against the EUR.
- NZD: With the highest rates amongst the major currencies and insatiable demand for NZ assets from the big Chinese cash cow, it's hard to see this NZD rally halting anytime soon. Big level to watch- NZD/USD record highs at .8850.
- CAD: The market had been trying to sell the CAD but the fundamental story is still more promising than it's big North American cousin, hence the position clearing that we've seen in recent weeks. USD/CAD needs to break below 1.0600 to generate fresh momentum and get the market thinking about CAD longs.
- AUD: The RBA put a spanner in the bulls machinery yesterday and I'd expect the Aussie to struggle against the above 3 currencies for the next few months.
So what about the new funding currencies, the big printers, USD, EUR and JPY?
- As the latest to the printer and still at quite overvalued levels on certain crosses, I'm of the view that the EUR will be the weakest amongst all major currencies in coming months. EUR/GBP is the obvious trade still, despite the fact that it's come so far already.
- The JPY still looks weaker than the USD so I'll put that in second last place.
- The Fed has commenced with it's long overdue tapering and whilst it will be years before we see any sort of 'normality'. the USD should out-perform the other two printers over coming months.
Conclusions: Sell EUR/GBP rallies on all time-frames; range-trade AUD/USD with a very mild bullish bias; and wait for the dip-buying opportunities in the 'strong' and rally selling opportunities in the 'printers'.
GBP might be affected in early London trade by AUD syndrome
The GBP and the AUD have been reasonably closely correlated in recent weeks. We are either about to see a big break higher in GBP/AUD, or the GBP might come under some pressure and drive it back into the previous range. Really not sure which, but in the short-term at least, we may see the GBP come under a bit of pressure? (Well makes sense to me :) )
AUD/NZD in dangerous territory below 1.0700
The RBNZ are in hiking mode and the RBA Governor seems to be suggesting that there is more chance of Australian rates going down rather than up! This is a big change in emphasis.
Many macro players had been trying to build longs in the AUD/NZD, if market chatter is to be believed, but I bet any long positions out there are getting a bit nervy!
The next level to watch is a previous daily low at 1.0647.
Stevens talking AUD lower; but where were these comments on Tuesday
Comments from the RBA Governor this morning that housing conditions do not warrant higher rates and that the AUD is over-valued on most measures have sent the AUD/USD tumbling from .9440 to lows around .9375.
I think it's fair to ask, why didn't Mr Stevens put these comments in his RBA board statement on Tuesday.
I'm happy to buy any AUD dips but will wait until the dust settles.
If you're making money in these markets, then you are the exception
- Of the 15 FX-only managers on a big interbank platform, 14 made losses in the first 6 months and the 15th was up a massive 0.25%!
- Of the 3 funding programs that FXWW is associated with, only 2 traders managed stellar performances in the first half of 2014 but fortunately most were close to break-even.
- On a personal note, my long GBP trade paid dividends as did some other shorter-term trades like short USD/CAD and long AUD/USD but I also got chopped in the wash on numerous occasions.
Turnover and volumes are down appreciably across the FX market and retail traders in general are becoming more proficient. This means that the 'pool' of profits is getting smaller and more hard-fought and of course when the banks/brokers take their share, there is less left for the rest of us to fight over.