Sovereign buyers drive EUR/USD through 1.3800; 1.42 here we come
The barrier has been breached and stops above 1.3810 have been triggered after fresh demand was noted from Asian central banks.
Demand has been incessant in recent days and with USD sentiment still at low levels and no technical resistance until 1.42 (see chart), I wouldn't even contemplate picking a top just yet.
AUD slightly higher after Chinese PMI data
New orders came in at a 7-month high and the 50.9 reading was a modest improvement on last month's 50.2 final.
The AUD/USD has popped up to .9645 and USD/JPY is back above the 200-DMA after a brief look below.
EUR continues to be very well supported
- The strengthening Yuan is leading to some quite heavy EUR buying from Chinese interests;
- Sell orders near 1.3800 in EUR/USD are quite heavy but there's not much sign of a dip;
- Some of the crosses like EUR/AUD and EUR/GBP made some very easy gains yesterday suggesting more topside ahead.
I'd still tend towards buying dips in the EUR/USD, perhaps something like a 1.3650/1.3850 range in coming days? Sorry, no strong feel on the ultra short-term stuff.
AUD/USD: Look to play wide .9525/.9750 range in coming sessions
- The 200-DMA at .9750 is looking like the crucial technical level (see chart);
- Support levels are fairly light until trend-line and prior highs near .9525;
- AUD/JPY reversed sharply after a strong technical break but the risk-reward in buying dips towards technical support levels at 92.70/80 looks quite attractive (see chart);
- AUD/NZD continues to look modestly bullish;
- EUR/AUD confirmed its support level at 1.4125 before rallying sharply.
USD/JPY: Market watching for daily close below 200-DMA (worth 530 pips?)
- Obviously all charts have slightly different data but the ones I've seen have the 200-DMA coming in between 97.22/26;
- A daily close clean below there would be seen as a very bearish event;
- Goldman Sachs estimate that the average move on a close below/above the 200-DMA is 530 pips.
Light turnover during NY session apart from the CAD
The BoC surprised the market with a dovish statement and this sent the CAD scuttling lower. As you can see from the Reuters heatmap, turnover was fairly slow during the NY session apart from the CAD
FX market now less predictable after yesterday's change in tempo
We had a definite change in tempo yesterday during the Asian session and through early Europe with traditional risk trades like NZD/JPY (during the Asian session) and GBP/CHF (during European trade) experiencing some extreme volatility. Picking the type of market is just as important as picking the direction, and now we must wait and see if the volatility continues or not.
NZ trade data and the HSBC version of Chinese manufacturing PMI are the main events on the economic calendar and any follow-up to yesterday's Chinese banking story will of course add to the volatility.
GBP/CHF: Large seller emerges in early London
It's been all about the crosses today and after the JPY crosses got smashed in the 2nd half of the Asian session, I guess its no surprise to see the CHF crosses coming under fire during European trade.
John from MNI, who always has impeccable sources, is reporting in the FXWW-RM chat room that a big US player is behind the 50 pip fall in GBP/CHF over the last hour or so.
Quick overview of busy Asian session
- Yen crosses opened with a very bullish tone after US data;
- AUD/USD broke higher after higher-than-expected domestic inflation data, taking out technical resistance at .9715 (50% Fibo) but stalling ahead of the 200-DMA near .9750;
- AUD/NZD took out stops above 1.1450;
- China set a new record high mid-point for the Yuan;
- EUR/USD rallied towards 1.3800 but ran into very heavy offers on interbank trading platforms;
- NZD/JPY was the first of 'risk' pairs to turn aggressively lower;
- Many are blaming this story, http://www.bloomberg.com/news/2013-10-22/biggest-china-banks-triple-debt-write-offs-to-brace-for-defaults.html;
- Equity markets fell heavily and USD/AXY turned sharply higher;
- Yen crosses got smashed with trailing stops triggered across the board;
- NZD/JPY led the rout, down by over 2%.
Equity markets continue to fall in Asia; USD/AXY on the rise
- My technical support level in EUR/JPY lasted all of a few minutes;
- Equity markets are down across the board and USD/AXY has caught a strong bull trend;
- NZD/JPY has been the big mover on the FX market, now almost 2% lower.
EUR/JPY: Look to buy near 134.35/40 with tight stop
- Good technical support at that level (see chart);
- Risk sentiment likely to stay positive which should benefit this cross;
- Stronger Yuan likely to lead to more EUR buying.
NZD heading lower on crosses
AUD/NZD has broken above 1.1450 after the higher-than-expected Australian inflation data and now the NZD selling has spilt over into NZD/JPY.
Next support close by in NZD/JPY at 82.65/80.
Also worth noting that there were some very large offers on interbank platforms at 1.3800 a few moments ago.
AUD/USD: Takes out 50% retracement level after CPI data, now focusing on 200-DMA
The higher than expected domestic inflation data has further strengthened opinion that the rate-cutting cycle is now over. AUD/USD has taken out the 50% Fibo at .9715 and is testing its 200-DMA near .9750.
AUD/JPY is looking stronger by the minute and seems set to test 100 in coming weeks (AUD/USD at 1.0000 and USD/JPY at 100.00 perhaps?).
USD/JPY: Dead-heat in race to the bottom
- The market doesn't like either currency at the moment and broad sideways trading is very likely to continue between 95.50/101.50 (see chart);
- My bias is tending towards slightly bullish given how strong momentum is developing in some of the crosses, EUR/JPY in particular;
- Positioning is the great unknown here but we've seen little evidence to suggest that the big leveraged accounts are likely to blink any-time soon so I guess there's no point in trying to anticipate that;
- We may get a quick burst of profit taking in the Yen crosses once Tokyo opens, but any dips to 134.70 in EUR/JPY or 94.70 in AUD/JPY certainly look like buying opportunities.
EUR: Makes strong gains across the board especially against the Yen
- EUR/JPY is one pair that I've gotten 100% wrong in recent weeks and I haven't seen this move coming. It has broken above recent trend highs at 134.70 and there is little in the way of decent technical resistance now until 139.00. I don't understand what's going on there so I'm leaving it alone.
- EUR/USD has also broken recent trend highs at 1.3715 and could easily see levels near 1.43 before the dominant range-trading bias reasserts itself.
- I remain bearish on EUR/GBP but short-term resistance near .8500 is looking shaky and bears might be better served to withdraw and defend higher levels.
- Much of the EUR buying is coming from China and could continue for a while yet.
AUD/USD: Important technical resistance near .9720
The 50% retracement of the big downmove from 1.0580 to .8850 comes in near .9720 and this level is certain to attract plenty of profit-takers (see chart).
The AUD has made small gains against the Yen, breaking through the barrier at 95.00, but has lost ground against a galloping EUR, where EUR/AUD support at 1.4125 (see chart) is looking very strong indeed.
EUR/GBP: Technical resistance at .8500
- This level has held nicely in recent days (see chart);
- There are likely to be stops directly above .8510;
- I still really like the sell-rally play here but we could see prices near .8550 on a quick spike;
- The market tends to get a bit more bullish towards the end of the month in expectation of central bank flows.
AUD/NZD: Increasingly looks like base in place
- Possible double bottom at 1.1200 (see chart);
- Prices have fallen already a long way in what is normally a very stable pair;
- NZ rates certainly more likely to go up rather than down but this is already priced in.
I can easily visualise this pair trading back towards 1.1700 again and of course a break and hold above there could confirm a double-bottom pattern. Risk-reward favours buying dips with stops well below 1.1200.