EUR/USD: 1.3650/70 looming as critical support level
The market was bullish EUR/USD at 1.3950 pre-ECB and is now bearish 250 pips lower. The dovish statement shouldn't have come as that much of a surprise and with any Fed taper now seemingly off the agenda, there is no diverging policies between the Fed and the ECB which would give me strong confidence in a EUR/USD trade.
On the other hand, the EUR crosses look shaky and one can make a strong case for being short pairs like EUR/AUD and EUR/CAD. Even EUR/JPY could be in for a bigger shake-out but that will be driven by positioning, not fundamentals.
In other words, (long CAD, NZD and AUD), (short USD and EUR), (buy GBP-dips bias), (sell JPY-rallies bias) and don't trade the CHF. That just about sums up my view of the majors.
But, back to EUR/USD. 1.3700 is not the place to be getting bearish in my view and 1.3650/70 is looming as a critical support level. If this latter level breaks then I will turn bearish but I would not sell breaks while the USD is still struggling, preferring then to sell rallies.
USD/CAD: Added to short position
I still think this pair is likely to be one of the big movers and all it needs is one 'shock' to drive the bulls out of town.
- The big prime brokers have been reporting that real money longs have exited to a large degree leaving increased speculative longs, which were already at quite extreme levels;
- Moves in the US Treasury market suggests that they have given up completely on any 'Taper' in the foreseeable future;
- Some of the crosses like EUR/CAD are looking technically bearish.
It's quite possible that we see some extended 1.0750/1.1000 consolidation but I think there is a big move lower coming. Timing, as always, is everything.
AUD/USD: Longs definitely favoured
- The market reaction to the Australian budget was quite strong;
- US Treasury yields continue to slide;
- Struggling iron ore prices are being ignored;
- Charts are showing a period of bullish consolidation.
On the cautious side:
- Yen crosses are starting to look susceptible and AUD/JPY bulls will need to be wary of a sharp downside clean-out.
I'd suggest that we continue to build long positions inside of a broad .92/.95 range which will eventually break higher towards parity. This could take weeks/months as market momentum is weak and the short-term speculative market smells a bit long.
EUR/USD finding support from ACB buyers
The Bank of Korea intervened very heavily during Asian trade, buying USD/KRW, and they will diversify out of these purchases during early European trade by buying EUR, GBP and CHF against the USD.
The AUD has reacted well to yesterday's budget and those stops above .9435 will be getting nervous.
AUD and NZD; further short-term range trading ahead
Yesterday in Asia we traded a 5 pip range in AUD/USD for much of the day and we are opening at exactly the same levels again. The budget didn't have much of an impact although the AUD has made decent gains against the EUR in particular.
Earlier in the week local banks suggested that standing orders would keep us inside a .9310/.9410 range and this has proved to be 100% accurate.
I'd suggest an even tighter .9330/90 range for today barring unexpected events.
The NZD hasn't really been affected by this mornings FSR by the RBNZ. The market doesn't seem to know what to do at the moment so best we also sit back and wait for it to make up it's mind.
NZ retail sales out shortly.
USD/JPY: Only a matter of time before we see a down-side clean-out
It's not so much the size of the positions, but the proximity of the stops which are the main worry here. In tighter markets, traders tend to run bigger positions with tighter stops, so that when the break happens it can be quite sharp and nasty.
My research suggests that both retail and professional traders are sitting long of USD/JPY in significant size and there are large stops now placed below 101.40 and at regular intervals through 100.50. With EUR/JPY threatening to re-take levels below 140 again, this could be the catalyst to trigger these stops.
EUR/USD: More medium-term sideways trading the most likely outcome
I certainly think there is significant potential for more downside in the EUR but this will happen mainly on the crosses I think. EUR/CAD, EUR/AUD, EUR/JPY etc are all showing reasonable prospects of another 5% fall as we head towards the next ECB meeting. EUR/USD has already fallen from 1.40 to 1.37 and is likely to encounter strong support near 1.3625/50. With the medium-term range-trading mode firmly entrenched, I would expect that EUR/USD will struggle to generate fresh downside momentum.
I prefer to look to the crosses for trades. If EUR/USD struggles to break below 1.3650, then I will be tempted to sell more USD/CAD, or re-buy cable, or maybe even to sell USD/JPY.
AUD longs getting nervier as budget deadline nears
We pretty much know what's going to be in the budget and those hoping for higher AUD rates in the near-term (and possible carry trades) are likely to be disappointed. AUD/USD is drifting lower into the early European session and there are likely to be more stops below daily lows and the 21-dma near .9315.
Australian budget night: Hair-shirt budget will impact on domestic growth
Higher taxes and reduced spending, heavy job losses in the public sector, and no new stimulus measures. That's what the Australian economy can expect from tonight's budget.
The local economy is relying heavily on the influx of investment capital, from China in particular. The mining boom has tapered off and other important sectors such as Tourism and Higher Education have had a rough few years on the back of the higher AUD.
The danger in my eyes is that an overly harsh budget, at this stage, could severely impact already fragile business and consumer confidence. If that happens, then unemployment and retail sales data will be immediately affected and the AUD will be in for a rough ride.
I've never taken a position on the back of a budget and I'm not about to start now. But it will be interesting to watch market reactions across a number of financial markets tomorrow.
Hard work getting used to these slow-moving markets
The occasional bouts of activity get us ready for moving markets only for prices to slip back into the doldrums again. Today isn't looking particularly promising with only minor housing data from Australia and New Zealand on this morning's economic calendar.
I find these markets tough to trade, trying to decide whether to concentrate on the short-term ranges or be patient and wait for the more medium-term moves to evolve. I've only been trading for 28 years; I'm sure I'll get the hang of it eventually :)
I'm not going to go chasing any moves and if some interesting levels arise then I'll try and fade into some positions. I still like the long CAD, the buy-AUD-dip, and the sell-EUR-rallies plays but I'm not seeing very interesting levels at the moment.
EUR/GBP: Taking small loss on this morning's long trade
The GBP has been good to me over the last few months and I'm not going to tempt fate by trying to trade my way out of a small intraday trade, especially when momentum is lacking. Sometimes it's best to take a small loss and start over again.
I'll stick with my short USD/CAD strategy and otherwise wait for dips in the AUD/USD and some of the AUD crosses.
AUD: Quiet start but starting to feel bit 'soft'
Iron ore prices continue to slide lower and it may well only take one bad piece of economic data, either Australian or Chinese, to bring the AUD bears back out of hibernation. I'm still strongly of the view that we will see .98 before we see .88, but that doesn't mean we don't see .9150 in the meantime.
Tomorrow's budget has been clearly sign-posted and is unlikely to move the AUD too far.
Local banks are suggesting that standing orders should keep us inside of a .9310/.9410 range for a few sessions.
EUR/GBP: Risky intraday longs in play
As you know I've been bullish GBP for quite some time now and booked my cable profits last week. Nevertheless, the GBP now looks very soft on some of the crosses and even though it's not the most obvious fundamental trade, EUR/GBP certainly gives an obvious 'technical' entry level.
.8160 is a long term 61.8% retracement level and has held really nicely on a number of occasions. I've taken a long position with a tight stop at .8140 looking for a short-squeeze pre-BoE back towards .8250.
The week ahead, May 12th: Finding a currency to buy is proving difficult
- EUR: The ECB statement shouldn't have been that much of a surprise but the short-term 'herd' nature of current markets means that traders forget influencing factors which happened only weeks ago in favour of the current short-term trend. Now everyone is turning bearish on the EUR and whilst we will surely see some profit taking on longer-term trends like EUR/JPY, EUR/AUD and EUR/CAD, I think EUR/USD traders need to be careful and pick the correct entry level (1.3650 is still the vital pivot in my view).
- GBP: The fact that cable pulled up shy of 1.70 and that the market is certainly still long of GBP are very relevant factors here. This week we have the BoE inflation report on Wednesday and I expect to see more GBP selling as profits are taken off the table. EUR/GBP is holding grimly onto support levels near .8160. I'd play a 1.6650/1.6925 cable range this week with a short-term bearish bias (although the long-term bullish view is still intact).
- JPY: Still in the too-hard basket for me. The market is still quite short albeit at much reduced levels. USD/JPY is likely to trade in tight ranges but I think we may see some of the Yen crosses like GBP/JPY in particular come under short-term pressure.
- AUD: Budget day tomorrow in Australia and we should see some increased volatility. Solid resistance at .9425 is still proving tough to crack. I'm not sure on the AUD/USD in the short-term but will stick with my very strong buy-big-dip bias towards .9150.
- CAD: Real money shorts have been exiting the market meaning that speculative shorts have now increased despite the rise in the CAD. USD/CAD bounced after poor Canadian jobs data but that is soon forgotten and positioning levels will become the important factor. I still think long CAD is the most obvious trade in the market.
- USD: The long-term bear trend is still very firmly in place and will remain so until the Fed can manoeuvre it's way out of the printing room. The Treasury market is giving macro leads here. The USD should find short-term support against the JPY, EUR and GBP but will struggle on any rallies against the commodity bloc.
USD/JPY: Capped below 102.00 but very solid bids still being reported
All those hoping for some volatility in USD/JPY may be disappointed again. I'm hearing reports of very solid bids towards 101.25 which will prove difficult to budge. Sellers are lined up near 102.00 so it looks like being another tight-range day.
GBP crosses technicals
- GBP/JPY sitting right on daily trend-line support;
- EUR/GBP sitting right above very important technical support.
AUD/USD: Looking to play .9330/.9430 intraday range with bullish bias
- Present markets are all about stops and I'd expect there to be plenty of stops above .9430;
- Seems to me that the intraday market tried to pick a top yesterday between .9360/90 so dips will be limited to .9330 I'd guess;
- AUD/JPY may well provide any downside potential with 'risk-off Friday-itis' to the fore;
- On the other hand, the AUD is starting to look quite solid against the EUR, GBP and NZD.
Definite short-term buy-dip bias here in my view, looking for a .9425 test later today.
Risk off Friday and I think GBP/JPY might be a good vehicle
I think it's pretty safe to assume that the market is quite long of GBP/JPY and we may see some profit taking ahead of the weekend.
USD/JPY resistance at 101.90/95 held nicely yesterday and of course cable has been stalled ahead of 1.70.
Watching intraday brief here but with a definite bearish bias.