Hurry up and wait
This market will move, eventually, but once momentum is sucked out it can be quite a while before it returns. The pre-ECB EUR bearishness has given way to sideways consolidation, and the market is already sitting nervously on large positions based on the other trends (long GBP, short JPY etc) and lack of momentum begets impatience.
It's unlikely that we will see any major movement during Asian trade with only NZ current account data and Japanese trade figures on the calendar. The BOE minutes from their last meeting will certainly add some spice to the GBP market later this afternoon.
EUR/AUD: Contrarian trade idea
I guess if the EUR/USD is susceptible to a short-squeeze and the AUD/USD is capped by option sellers, then we should consider a contrarian EUR/AUD trade :)
A 5-wave down-move has completed from 1.5540 to 1.4350 and a 38.2% retracement of that move would take us back toward 1.4800. Good risk reward potential for the contrarian bulls here especially if we get some type of intraday dip after the RBA minutes.
AUD/USD: Still struggling to break above .9425/50
Option players have this market pretty much tied in, as we've been saying for weeks now, and it doesn't look like this is going to change any-time soon. Option-related selling interest between .9425/50 remains very heavy and unless we get some major surprise from the FOMC, range-trading mode will continue to prevail.
Rally selling in AUD/JPY has also been prevalent in recent days but this can probably be attributed to risk-aversion, after the security situation in Iraq turned grave.
Today's RBA minutes are unlikely to hold any major surprises.
EUR crosses threatening to squeeze shorts
- EUR/USD has stalled on a number of occasions at important technical support neat 1.3500 and there are certain to be trailing stops on the topside;
- EUR/GBP has been on a steady bear run after the conflicting central bank statements, but with momentum generally lacking, it feels as if shorts may soon start to book some profit. All it will take is some sort of clarification from Carney in particular and the shorter-term GBP longs will start bailing;
There is no strong reason to be long EUR but if the market is short and momentum is lacking, then we can expect short-squeezes from time to time.
Cable: Still struggling to break above barrier protection at 1.70
- Risk aversion brought about by escalating violence in Iraq is weighing on crosses like GBP/JPY;
- Dealers report heavy option-related offers on the approach to 1.70 in the cable;
- Most reports suggest that the market is significantly long of GBP.
Violence escalating in Iraq; impact on oil price and 'risk' trades
There have been a number of reports this morning of increased fighting around Baghdad airport and any escalation in violence will certainly impact on the oil price and and 'heavy positioning' in the FX market.
Most of the big oil production is in the south of Iraq so we should not see a massive impact on the oil price unless fighting gets closer to there.
There will be conflicting influences at play in the FX market:
- Higher oil prices is a negative for the Yen, as Japan is so reliant on imports;
- On the other hand, the market is already very short of JPY and risk aversion usually leads to Yen buying;
- Higher oil prices also benefits the GBP, NOK and CAD but as with the Yen, the market is also long of the GBP and NOK at least;
- Risk aversion also usually favours the USD and the CHF.
I'm really not sure what to do in the currencies but looking for good technical entry levels to buy either Gold and Silver does seem to make sense.
Central Bank scandal sends the Zloty tumbling
Hopefully none of you were long PLN over the weekend as the Zloty has been hit hard by a scandal surrounding a 'secret recording' made of a conversation between the Polish Central Bank chief and the governments interior minister (more detailed information available in the FXWW chat-room).
USD/PLN has opened 2 big figures higher at 3.0550 and there is important technical resistance looming with the 200-dma at 3.0590 and range highs at 3.0660.
BOJ not giving market any reasons to turn bullish Yen
The BOJ policy statement shows that they will continue along the same policy path for the foreseeable future, making the Yen an obvious choice as a funding currency for carry trade players. Whether to choose the JPY, EUR or USD as a funding currency is now really a matter of personal choice.
GBP/JPY is starting to look interesting again, as it nears a series of 3 flat daily highs near 173.50; a clean break above there should really accelerate momentum.
USD/JPY has moved to a safer distance from technical support at 101.50/57 and EUR/JPY is also looking less precipitous.
EUR: Likely to remain weakest of all major currencies
The EUR looks very sick on all of the major crosses and as they are the most recent addition to the negative rates/QE club, I'd expect this negative EUR sentiment to continue for some time.
- EUR/GBP is headed toward longer-term neutral levels near .75 and selling any 150 pip rallies is the obvious play here in my opinion;
- EUR/CAD, EUR/NZD, EUR/AUD etc are all consolidating recent moves lower;
- Even EUR/JPY is looking susceptible to a sharp downside clean-out and the big stops are now building below 137.00 according to market reports;
- EUR/USD is likely to trade gradually lower but in more of a sideways pattern.
USD/JPY: Support levels start at 101.50/57
- The 200-dma comes in at 101.57;
- Dealers reports solid bids at 101.50.
Remember it's BOJ today and we may see some last minute positional adjustment.
I'm still in range trading mode on this pair with a modest buy-big-dip bias.
NZD/USD: Technical resistance near .8700 holding for now
Short-term players will start to get interested if this technical resistance level just below .8700 continues to hold. I'm pretty sure that any pull-backs will be limited to 125/150 pips, but that's not to be sneezed at!
Market reactions to central banks telling us plenty
Whilst the headlines from the Carney speech were very hawkish, the substance wasn't quite so, yet the market reaction to this speech and yesterday's RBNZ decision tells us a lot about the market's thinking.
Yield is King. Nobody wants to be short the NZD when they are raising rates and the market will want to be very long of GBP if/when they start raising rates. Store this in your memory banks for the next few months.
Division between 'big 3' and rest becoming clearer
The USD, EUR and JPY are set to continue with their zero rates policy and QE strategies for some time to come but it's now becoming clearer that the other major currencies will have different agendas. If you're a macro or real money player looking for yield or even as a basic 'store of value' then you will almost certainly eschew the big 3 in favour of the GBP, NOK, AUD, CAD, NZD etc.
This is likely to be the major trend for the rest of this year in my view.
There will of course be some swing trade opportunities amongst all the major pairs but the trends are becoming even stronger.
Carney: UK set for rate rises sooner than expected
Following on from the RBNZ rate hike yesterday, overnight comments from the UK's Mark Carney that the BoE might hike rates sooner than expected has certainly thrown the cat in amongst the pigeons. The GBP had already been making some strong gains before the comments and traders will need to be very careful now if they plan on shorting the rampaging pound.
The obvious market targets now are .8000 in EUR/GBP and 1.7000 in cable, and we will certainly get a strong test of the former level in early Asian trade.
NZD/USD: Reaction to RBNZ starting to look overdone
Most of the weak NZD shorts will have been culled by now in what has been an extreme market reaction to what was basically an expected event. Recent market momentum has been poor and I find it unlikely that NZD/USD will simply keep going in a straight line higher in the short-term at least.
There is solid technical resistance near .8690/95 (recent highs plus a 76.4% retracement) and bears can try selling there if an hourly top forms, with relatively tight stops as always.
AUD/NZD: Big move lower continues, already 125 pips lower on day
We were trading at 1.0970 before the RBNZ announcement and now we are trading near the 50-dma at 1.0850. The only possible explanation for such a strong reaction to 'as expected' developments is that the market got caught overly long at the wrong levels.
Those waiting in expectation of a relief rally will need to lower their expectations now, with 1.0925ish likely to cap rallies. A clean break below 1.0850 will put the short-term focus on pivotal levels near 1.0750.
At least we should continue to get some short-term volatility in this cross.
AUD/NZD: Short-term levels to watch at 1.0870/1.0930
There should be some decent trading opportunities in the cross throughout the morning.
- The market looks like it was caught long so any rallies will attract selling interest. Previous lows near 1.0930 should now provide initial resistance.
- Medium-term buyers will probably not be dissuaded and there is a potential basing pattern in place on the longer-term charts. Therefore dip buyers are also likely to appear and the first level of support will be at an a short-term pivot level of 1.0860/70.
NZD: Hard to be bearish when they are the only central bank hiking rates
It's pretty difficult to find any good store of value in the current FX market so when one central bank embarks on a modest 'normalisation' process and starts raising rates, then their currency is certain to attract plenty of carry-trade followers.
The RBNZ raised the OCR, not unexpectedly, to 3.25% and the market reaction shows that there had been quite a few shorts in play.
- AUD/NZD has triggered downside stops and surely any rallies now back towards 1.0960/70 will attract grateful sellers;
- NZD/USD should now find support on any dips back towards .8550.