NZD to be focal point during early Asian trade
- The close in NZD/USD below previously important support is likely to attract plenty of model and macro interest;
- AUD/NZD is again fast approaching important resistance levels at 1.0900/25.
I'd play this move with a fair degree of caution. The FX market has been unable to generate a lot of momentum in recent weeks and I think it might be a bit much for us to expect strong trending moves to suddenly develop. Selling NZD rallies certainly looks like the play but I'd be very cautious about selling breaks.
USD/CHF: 200-dma at .8987
The 200-dma comes in at .8987 for the Swissy and a break and close above there would be a solid confirmation that the double-bottom formation is taking control.
NZD/USD: Very important technical support ahead of .8500
A break below .8500 would suggest a potential topping pattern. If this were to happen in conjunction with a break in AUD/NZD above 1.0925, then we could really be on to something significant.
Cable: Should find initial support near 1.6770
- EUR/GBP is getting back towards more attractive 'sell' levels and anything near .8150 surely must be worth consideration for the bears?
- Cable bids are reported to be fairly solid near 1.6765/70.
Overall I think that cable will trade in a broad 1.6550/1.6950 retracement pattern in coming weeks. Selling rallies is preferred but remember that the uptrend has been strong so we will get rallies. Sell into strength, buy into weakness, like any good FX market range trader should.
GBP/CAD: One for the contrarians to keep an eye on
Without doubt, this has been one of the 'Liebling' trades of the past 6 months, with macro funds piling into GBP/CAD longs. Are we about to see a top form and a retracement get under way? It's certainly a possibility so the medium-term contrarians should pay close attention to what happens at the big levels.
USD set for further gains against the GBP, CHF and EUR
- Cable looks to be offering the clearest sell signal with resistance levels now likely to be very firm between 1.6850/80 in a market that is already very long at elevated levels. I think we could see a healthy retracement towards 1.65 perhaps, presuming of course that we don't get any excessively bad data out of the US;
- USD/CHF is more of a technical trade with a double bottom forming on the daily chart;
- EUR/USD also seems to have turned a corner in regards to market sentiment. Sovereign and real money bids have reportedly dried up to a large degree ahead of the ECB and hedge funds are more willing to sell rallies.
I think the USD bulls should stick to the above pairs.
Elsewhere, USD/JPY is tied in by massive flows on either side of its range, USD/CAD will struggle to rally with the market unwinding large CAD short positions on the crosses, and both the AUD and NZD are still benefitting from significant demand out of China.
Cable starting to feel very heavy
Those sell orders at 1.6880 capped the market perfectly and stops below 1.6800 are swiftly coming into view. On a broader view, the cable is certainly getting a very heavy feel to it and I'm thinking a sell-rally strategy is the way to go for the next few sessions with levels on the 1.66 handle looking more likely than 1.6950++
Pfizer cancellation of AstraZenica takeover could be bearish for cable
It's always difficult to know how much (if anything) was pre-bought ahead of such M&A deals. What we can say is that the cancellation of the deal will blunt bullish GBP sentiment to some degree and with the market already long, there could be some downside risks.
Market chatter suggests sell orders starting above 1.6880 and stops now below 1.6800.
Hedge funds selling JPY and AUD
Just reading some flow information from BOFA in the FXWW chat-room which suggests that hedge funds are getting back on the Yen bear trade.
The AUD has also come in for some attention from the professional trading community, with longs in the futures market at 1-year highs, and BOFA report selling across the board from its clients.
The persistent buying of EUR by real money, corporate and official accounts has also moderated.
USD/CHF: If you want to be long USD, then this could be the go
There have been various undefined market rumblings over the last few days re big accounts buying USD/CHF in decent size. There is a developing double-bottom on the daily chart and a break and close above the 200-dma at .8990 would make this pair look very attractive to the bulls.
USD/CAD: Still short targeting 1.0760
This pair hasn't moved as fast as I had hoped and obviously I'd have been much better off playing the EUR/CAD trade, but we shouldn't complain about profits (especially in the Loonie!).
I still like the idea of booking at least partial profits on any dips towards 1.0760 and then looking to re-enter on rallies. The USD is enjoying some positive market sentiment overall so I would not expect USD/CAD to fall in a straight line.
Central bankers still keen to talk their currencies lower
Over the weekend we heard references from both the ECB (Coeure says that the ECB should take FX rate into consideration when deciding policy options) and the BOJ (Kuroda said the Yen is unlikely to rise against the USD) and even though they may dispute it, it's blatantly obvious that all central bankers want a lower currency. Looks like the race to the bottom can proceed in earnest!
So if everyone wants a lower currency, what currency actually goes higher?
USD looking reasonably solid to start the week
- USD/JPY has bounced nicely after the stop-loss driven push below 101.00 early last week. I expect sell orders between 102.25/50 to be very solid indeed and further range trading is favoured in the short-term. That said, medium-term bulls will be heartened by last week's bounce;
- EUR/USD closed last week below previously important technical support at 1.3635 and the path of least resistance from here would seem to be down;
- Cable is also looking somewhat toppy in the short-term and a wide 1.6650/1.6950 consolidation phase would not be at all surprising. Much will depend on what happens in EUR/GBP if it can approach .8000;
- AUD/USD and NZD/USD are not showing much of an inclination to bounce and I suspect that we will see a test of important support levels at .9135/50 in the former at some stage this week;
- USD/CAD is the one exception (how often have we said that over the years :) no wonder it's called the Loonie!). The market has gotten itself short of CAD across the board at the wrong levels and hence we are seeing the reversals against the EUR, JPY etc.
Have a great week.
AUD/NZD: Bulls can consider longs with tight stops below 1.0740
This pair worries me a bit as seemingly everyone I speak with is either bullish or long. Maybe this is purely a coincidence. What we can say for sure is that support levels near 1.0750 have held very well on a few occasions and bulls can find plenty of reasons for buying at current levels with 50 pip stops well below the support points. The topside target is still the very important 1.0900 level. A break above there would suggest that a bottoming pattern has developed.
EUR/GBP: Risky contrarian trade idea
- 99% of the market is now bearish EUR/GBP which does suggest that we may be in for a relief rally;
- We are hearing increasingly loud rumblings out of Germany that they will seek to contain any extreme ECB easing measures;
- Option barriers are reported at .8050, and again at .8000;
- The cable market is long and we could see a squeeze lower especially if 1.6900/20 continues to hold topside;
- EUR/USD looks and feels very heavy but the market has been unable to break below the 200-dma at 1.3635 despite numerous attempts.
There is some excellent risk-reward in buying EUR/GBP near .8060 with stops below .8040 and .7995 targeting .8160 and possibly higher.
CAD continues to provide bullish signals
Overnight we saw some minor signals in AUD/CAD and CAD/JPY which continue to point towards additional CAD strength. As I've maintained for a while now, the market is overly short of CAD at the wrong levels and I'm expecting a clean-out (as soon as that black swan appears :) ).
The broad sideways action between 1.0750/1.0950 should hold in USD/CAD, giving me an excellent chance to build a strong short position. (Break above 1.1100 and I will exit the strategy).
GBP likely to stay strong at least until .8050 is tested in EUR/GBP
The GBP showed its resilience again yesterday. Certainly the data was strong again but the market is quite long.
- EUR/GBP made fresh multi-year lows and the market is now focusing on reported barriers at .8050;
- Cable tested 1.6920 last night but may struggle to take this level out without a struggle, with plenty of offers reported near there.
EUR/USD: Starting to feel increasingly bearish
- EUR/GBP is consolidating below previous support at .8160 and medium-term bear targets near .77 are starting to come into view;
- EUR/AUD ran into a brick wall near the previous long-term mid-rate around 1.55 and is likely to settle into a new long-term range with a mid-point closer to 1.40 according to my analysis;
- EUR/USD has stalled on two occasions now near 1.3635 but if this breaks cleans then bearish momentum will increase.
- Finally, the Buba seems to have gotten out of the way of the ECB when it comes to easing policies and they will join in with the Fed and BOJ in the great printing race!
Sell any rallies in EUR/GBP and EUR/AUD are the very clear trades to me and I will trade these more aggressively if 1.36 breaks in EUR/USD.