USD preferred ahead of EUR and JPY in medium-term
Plenty of people asking me about the big pairs, EUR/USD and USD/JPY, as this is what they are used to trading and they find it difficult to start concentrating on the crosses.
- USD/JPY: Positioning has not been a major issue with this pair for some months now. Central bank policy is the main driver and the Fed has already started minor tapering whilst the BoJ are more likely to stay expansionist. On a long-term basis, this pair is quite heavily under-valued in my opinion but on a short-to-medium term basis one can argue that it has already had a decent correction off record lows. On a risk-reward basis, I'd try picking short-term bottoms between 100.20/70 and see what happens.
- EUR/USD: The EUR looks likely to fall further against the GBP and the AUD and with big cross moves underway, I'd expect this supply to eventually have a significant effect on the EUR/USD. I tend to throw technicals out the window in these momentum-less sideways markets so its a matter of watching closely and selling when pairs like GBP/USD and AUD/USD reach resistance levels.
Very clear trends remain dominant in FX market
- Sell rallies in EUR, USD and JPY;
- Buy dips in GBP, AUD, NZD and CAD.
It then becomes a matter of picking the right time-frame to trade your chosen cross-pair on. Yesterday we had chances to sell EUR/AUD, today we have to look for the next opportunity.
Intraday I like the buy AUD/USD dips strategy, with .9450 now likely to contain dips for a move to .9600. USD/CAD looks oversold and contrarian bulls should keep a close eye on what happens at 1.0600. GBP still looks strong and will remain so during Asia unless some unexpected GBP/JPY flows appear.
EUR/JPY: 200-dma capping for now
I have no strong view on this pair and I should also mention that technical analysis proves generally unreliable in sideways markets.
That said, the 200-dma has capped EUR/JPY nicely for the last 3 weeks and it comes in today at 139.10.
AUD/USD: Stops reported above .9465
The AUD/USD has traded to highs near .9455 thus far but there isn't any sign of a significant dip. Fading the rally seems like the most popular trading strategy amongst local traders although there is talk of large-ish stops above .9465.
I'd suggest extreme patience still and wait for some over-extended moves either way before committing. I would not be surprised to see AUD/USD trading near .96 cents at some stage this week so bears might consider keeping their powder dry.
RBA: No change expected in policy, language or tone
Nobody is expecting any surprises today from the RBA and they will almost certainly keep their policy unchanged and leave the statement language as it was.
If this is what happens, we may get a push higher in the AUD/USD to see if there are any stops lurking above .9450 or .9470. The weak USD is a more relevant short-term theme than a strong AUD, but an "as expected" RBA will be slightly bullish AUD imho.
AUD/NZD has settled back above the previous pivot at 1.0750 and may attract some renewed bottom pickers whilst the rally in EUR/AUD overnight will certainly attract some corporate interest.
My bias is towards buying intraday dips but prefer to avois=d the market over the PMI and RBA risk events. Let's see how it unfolds.
USD looking weakest of the majors
The rampaging pound made fresh new highs last night against the greenback and the USD continues to look the weakest of the majors, in the short-term at least. EUR/USD has taken out most of the weak short-term stops but has been stalled by solid selling interest near technical levels at 1.3690. USD/JPY still looks likely to test important support levels at 100.70 and I've given up on my long USD/CHF trade, too slow for my liking.
The AUD and NZD have lost ground on the crosses over the last 24 hours but both are still in dip-buying mode, especially against the USD.
It should be a busy day for the AUD with Chinese PMI data and of course the RBA rate decision. I'll have a look at the important levels in a little while.
USD/CHF: Large bids ahead of .8900 with stops directly below
Sounds like a barrier option but I have no confirmation.
I'm still running a small USD/CHF long position but I'm fast running out of patience.
NZD/JPY: "Good" names noted selling in last few hours
Our hedge fund insider in the FXWW chat-room is reporting that the elusive good names have turned up in NZD/JPY this morning and are booking profits.
With NZD at record highs on the TWI and close to post-float highs against the USD, it's little wonder to see some profit being booked.
AUD: Busy week ahead, stay in range trading mode in short-term
AUD/USD is trading at .9415 this morning ahead of a busy week of data. The Chinese PMI and the RBA rate decision tomorrow should ensure volatility to start the week.
Unless something dramatic happens at either event to change the fundamental outlook, I would suggest that we use volatility in either direction to try and catch the new range edges. Overall momentum is lacking so a 200 pip move either way should present some decent trading opportunities.
Overall bias remains higher in my opinion but it could be months before we really get moving again. So not getting caught up in short-term euphoria and selling at .9600 or buying at .9200 (as unlikely as either seem this morning) is my current trading strategy for the AUD/USD.
EUR/GBP still the stand-out big position in the market
The market is heavily short of EUR/GBP in an environment where there aren't many other big positional trades going on. I guess we can make an argument either way here; perhaps the market has plenty of scope to increase shorts as there are so few positions elsewhere, or the lack of general momentum will cause the shorts to run for cover soon.
I'm still of the view that we are headed to .75 but the 'easy' money has been made in the move from .85 to .80 and now that the move is more mature, we are likely to see more of a grind lower with plenty of profit taking rallies along the way.
I've heard quite a few reports in the last few weeks of heavy profit taking by big hedge funds in GBP/CAD, GBP/JPY as well as EUR/GBP.
CAD positioning back to neutral levels
Latest IMM data would seem to reinforce what I've been hearing from the Prime Brokerage market, namely that the big CAD short positions which were in play when the USD/CAD was trading at 1.10 have now been unwound.
Unless something important happens to favour either of the North American currencies, I would suggest that we see a period of consolidation between 1.06/1.09 over coming weeks.
USD/CAD: Look to take more profits off table near 1.0600
According to my analysis, there should be very strong technical and flow support in USD/CAD near 1.0600. I would suggest booking some more partial profits near there and perhaps even exiting the market for a while if a daily low starts to form.
Many CAD shorts have been squeezed out over the last few weeks so the extreme downside positional pressure on USD/CAD should start to ease. I'm still very strongly in the sell-rally camp so I'd avoid going long unless trading short-term with very tight stops.
AUD should be well supported on intraday dips
- Iron ore futures are +1.75% in early Asian trade;
- End-of-fin-year flows are expected to be AUD positive (although most of bigger flows are surely already complete).
AUD/NZD threatening to break below important psychological levels
Many people have been trying to pick a bottom in AUD/NZD but the failure to break above 1.1000 will certainly be a worrying factor and now a previously important pivot at 1.0750 is threatening to break. Technical levels don't work so well in these present markets so that's why I feel that psychological levels take on even more importance.
I'm not sure which way this pair goes and I'm happy to stay on the sidelines.
When the market starts moving its likely to be very volatile
As I've mentioned recently, structural changes in the interbank FX market are having a huge effect on volumes and volatility. This period of sideways boredom also has the effect of driving professional and retail traders alike to seek their fortunes elsewhere. In other words, liquidity is getting poorer.
But something unexpected always happens if you just wait long enough. When it does, we will see a mad scramble by real money and speculators to get on the move and they will struggle to get their orders filled if liquidity is bad.
There are some trades in the market which are already quite mature and they will be particularly susceptible if/when that big black swan flies in.
AUD: Look for turnover to start increasing as we near end of financial year
Option players have been dominating the AUD/USD market for the last few weeks but we should see corporate and institutional flows start to pick up as the end-of-financial year beckons for Australian businesses. I've got no strong insight into the overall flow expectations, with banks now hanging on really tightly to this information, but most analyst predictions that I've seen suggest net AUD demand.
That said, don't be expecting any range breaks, with .9325/.9425 likely to contain most of the intraday noise.
Ranges still dominating across all majors
- GBP: there have been plenty of reports from the professional market of bigger players booking profits in pairs like GBP/CAD and GBP/JPY. Remember that we've come 20 big figures in the cable from 1.50! Up-trend still in play but it looks like we will see more profit-taking consolidation.
- The .9150/.9450 range in AUD/USD is still all-powerful and until the market can find some strong momentum, this range will be tough to crack. I'm still very strongly in the buy-AUD-dip camp but patience is absolutely essential.
- EUR/USD is stuck like glue to 1.3600.
- USD/JPY is also stuck in a range between 100/104 and shorter-term moves are likely to be influenced by the crosses. If we see heavy profit taking emerge in GBP/JPY and EUR/JPY then the next move in USD/JPY will be down.
New FXWW site being uploaded in next 24 hours
Doesn't look like we'll be missing much in the FX market!
If I think I see anything dramatic happening then I'll post it on Twitter, just in case there is any extended down-time.