AUD/NZD: Time to try building a long position
The NZD is getting hit in early Asian trade after the RBNZ made no change to policy, as expected. I've been waiting for an opportunity to get long AUD/NZD for a longer term trade and I think this might be it.
There is decent technical resistance, and talk of sell orders, between 1.0700/25 and that should cap any intraday rallies. Nevertheless, I'm starting to build a long position between 1.0570/1.0700, in the hope that a base may have formed and that the ludicrously over-bought NZD will finally start cooling.
Risk-trades bounce back after Turkey raises rates
You can read a full commentary here on Reuters.com.
My initial reaction to the news is that it smells of panic and might even have an unwelcome effect once the market gets to thinking about it. We haven't been seeing a massive pile-up of TRY shorts, it's simply been over-aggressive EM investment strategies being forced to bail out all at once. Will a rate rise stop the panic bail-out? Probably not in my opinion.
I wouldn't be buying risk-trades on the back of it, let's put it that way.
Quick look at order books in early Asian trade
Not much happening in the FX market this morning despite lower stockmarkets across the region.
- USD/JPY turnover above 102.75 was extremely heavy yesterday with Prime Brokers suggesting that macro longs were selling out of long positions on rallies;
- Bids around 102.00 from semi-state entities like Kampo;
- Elsewhere, AUD/NZD sell orders reported near 1.0700.
Yen crosses trying to recover important levels
I'm not much help at the moment as I simply don't have a good sense of what's happening in the market. Are we going to see a continuation of the bull GBP trend? Do the AUD and JPY keep tumbling? Could we see a big retracement in GBP/JPY? I'm really not sure on the latter, it's certainly possible, but I do think that the overall GBP bull move will continue into Feb/March.
I find that the best way to get a feel for the shorter-term market is to trade it in small amounts near important pivot points. Only when I have a position can I get a good feel for the market. The levels I'm looking at today are:
- AUD/JPY: 90.00 (previous support) and 90.50 (38.2% of last week's steep drop);
- GBP/JPY: 170.60 (hourly T/L and 61.8% retracement);
Let's see what happens at these important levels.
What's driving all these Emerging Market flows
Here's an interesting piece from the FXWW chat-room on Reuters Messenger:
"SocGen comments- This correction differs from your run of the mill. It was clear some EM reduction was already on the way a few days before the correction turned vicious and little of it showed classic contagion. The size of the EM pressure was of such a large size in more exotic destination (e.g. ARS) that some very large funds or banks must have been involved, otherwise reserve managers would have smoothed the pressure.
So who are the behemoth of such large scale re-allocation of capital. The WSJ reports a major Asian equity fund was unwound by its SWF backer last week. This is a decent clue. Ahead of Fed tightening, SWFs may be scaling down their hedge fund, equity and alternative investments holdings to concentrate into short dated government bonds (reserve managers run the short end). That is presumably very short dated UST and European bonds.
The price dynamics and ECB promising to fight deflation means that core and soft core European bonds are promising alternatives to equities. This suggests that the EUR should stay strong relative to its satellite currencies (smaller reserves will be squeezed for some USD liquidity).
While the Fed is widely expected to accelerate the pace of tightening, the adjustment in positions changes very little. USDJPY is likely to base and rebound quickly in the next 24h as VaR risk reduction runs its course. USDCAD even with such large long positioning barely budged in the past few days. That suggests the trend up is very much impact, the BoC there is clearly your friend".
Access to the chat-room remains free for now so if you want access then you must register in the blue form at the bottom of the page. All those who registered last week should receive an email from Reuters in coming days.
First move of the day was obviously stop-loss driven
- Nikkei has opened 2.6% lower but is edging higher in early trade;
- Gold is +$7;
- USD/JPY has rebounded from it's stop-loss drive below 102.00 to be back at opening levels near 102.30.
USD/JPY gapping lower in early Tokyo
Just as well we waited for confirmation of those bids at 102.00 as there appears to have been nothing at all. The market gapped straight lower to 101.80 and with some very large long positions still being reported from the big Prime Brokers, I'd be wary of trying to pick a base.
USD/JPY: Market expecting solid bids at 102.00
- Very quiet start today in Asia with Australian markets closed;
- There is early market talk of solid bids at 102.00 but I would wait for confirmation.
Looking to emerging markets for leads
Good morning all. Plenty of whip-saw movement at the end of last week mainly caused by a huge flight of capital out of emerging markets and continued doubts about China's growth and 2nd-tier credit system. Articles such as this one from Reuters suggest that the capital flight out of EMs might only be beginning, and if that's the case then pairs like GBP/JPY could be in for more serious retracements.
- The fact that the big 61.8% retracement in USD/JPY at 105.50 held firm is looking increasingly relevant. The big downside levels to watch are a previous pivot at 101.60, the 100-dma near 101.00 and the very important 200-dma at 100.00;
- The AUD remains under severe pressure across the board and there seems little point in trying to pick a bottom in it, except perhaps against the heavily overbought NZD;
- The speculative community is quite long of GBP and events in the EMs may cause them to reconsider. Cable in a 1.6250/1.6650 short-term range so no need for panic selling or buying just now;
- In times of panic, the EUR will tend to outperform many other majors, so further slow gains against the USD are certainly possible.
RBA comments send A$ lower again
A combination of a lower Nikkei post-lunch and comments from Heather Ridout that the AUD/USD rate should be closer to 80 cents have sent AUD/JPY tumbling below 90.00 and AUD/USD towards .8700.
EUR/USD: Bearish set-up now neutralised
I was trying to build a short position in EUR/USD and judging by yesterday's price action, I wasn't alone. Thankfully I got out at break-even and I'm leaving this pair alone again; too hard.
I'm still playing the short EUR strategy in EUR/GBP and EUR/JPY but I am trading them on dips.
Risk sentiment will be main focus for today's trade
Stock-markets look shaky and USD/JPY got hit by waves of stop-loss selling so we could be in for a nervy risk-off Friday in Asia. AUD/JPY is sitting on important technical support at 90.00 and a clean break below there will surely trigger more stop-loss selling. Pairs like EUR/AUD have made very strong gains in the last 24 hours which tells us a lot about market sentiment and positioning. There isn't much of note on the economic calendar so it will be all about positional adjustment. Good luck today and TGIF.
GBP/CHF: Looking to buy near strong technical support at 1.4870
- Trend-line and a 61.8% retracement level converge near 1.4870 (see chart);
- If buying this dip, keep stops fairly tight as it is risk-off Friday and some stock-markets are looking very shaky.
AUD/JPY: Testing water with small long near 90.35
Firstly, I'm not picking these moves particularly well at the moment and some of the cross moves in pairs like EUR/AUD have me quite baffled. Nevertheless, I still think it's worthwhile buying AUD/JPY near 90.00 just to see if technical support holds.
This level is a double-bottom neckline as well as a 61.8% retracement level.
I got stopped out of my EUR/USD shorts at break-even last night.
Any more applications for FXWW chat-room
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Hope you're all clever enough to be long GBP/CAD
- Big mover overnight with classic scissors move, GBP going up and CAD going down;
- Remember this classic trade idea from Morgan Stanley;
- Cross is undoubtedly overstretched but I would not recommend shorting the GBP at the moment, the trend is too strong.
EUR/GBP: Sitting on base of recent bearish trend channel
- This suggests that the market is somewhat oversold (but that bear trend remains in play);
- I would not recommend going long against this trend until a daily low forms at channel lows;
- Existing shorts can certainly consider booking some profits near current levels at .8170.
Hard to find any clear signals at the moment but I remain bearish on EUR crosses
- 1.3500 in EUR/USD looks like it might be a key level, if that breaks then look for a sell-rally strategy in EUR pair of your choice;
- EUR/GBP is heading lower in a bear channel but will find profit takers near .8180;
- If EUR/JPY breaks below 140.40 again, then we should see a clean-out of longs there also.
Patience needed and I think it's worth waiting for EUR/USD support to hold/break before committing.