USD/JPY still looks like key pair amongst the majors
Option dealers are saying that a break above 100.00 would change the landscape considerably and cause a rush of buying, and I'm thinking that the bulls will now be determined to re-take that important psychological level. The big hedge funds are piling onto this trade, despite the usual August holidays, and if they stay committed then they can have some serious impact.
Elsewhere the majors seem rather direction-less in the very short-term so we may be in for a few sessions of range trading.
Plenty of orders to keep ranges tight in Asia
- Hedge funds were very active in USD/JPY, buying aggressively for the 4th straight session;
- Sell orders reportedly very solid near 99.20/25 but the trend is strong;
- Cable buyers still solid near 1.5560 with stops immediately below there;
- AUD/NZD stops above 1.1550 and heavier through 1.1600.
AUD pops higher on talk of PBOC RRR cut
Chinese official newspapers quoting a state economist saying PBOC may cut RRR in coming months. The AUD has popped up 20 pips on the headlines, running into resistance now near .9040.
EUR/USD outlook: Range trading likely between 1.3280/1.3425
- EUR/USD is still unable to generate significant momentum;
- Banks and prime brokers report heavy buyers near 1.3280 and heavy sellers near 1.3425;
- EUR/JPY looks bullish but will run into significant technical resistance 132.00/70;
- EUR/GBP maintains bearish bias whilst below .8600;
- EUR/CHF is range-bound and EUR/AUD looks likely to re-test 1.5000 sometime soon.
Can't see any reason to get excited about EUR/USD at the moment; more attractive trades elsewhere.
USD/JPY outlook: Trading right at top of wedge formation
- Break out of consolidative wedge formation (see chart) should see prices testing 101.40;
- Hedge funds have been buying heavily again over last 24 hours on divergent CB policies;
- Recent history suggests caution however as this pair has been in consolidation mode and risk-reward favours shorts with stop above .9910;
- JPY crosses starting to look bullish but no major technical breaks yet in any of major pairs.
If bears like me start getting bullish then it must be close to the top! Patience required here; if 99.10 breaks then we can start buying dips quite aggressively but otherwise its probably best to wait and see what happens. Also watch the main crosses for any significant signals.
AUD outlook, Friday August 23rd
- Prices stalled at the 76.4% retracement of the .8850/.9240 rally (see chart);
- AUD/NZD looks likely to rally further towards a first Fibo level near 1.1760 (see chart) but I'd prefer to see 1.1550 break first before committing.
- AUD/JPY also starting to look bullish but the medium term trend is still bearish so need more confirmation there;
- Settling down in EMs and emergence of profit-takers in US Treasuries should both be AUD/USD positive;
- Nothing on economic calendar apart from Jackson Hole Symposium, where all big CB chiefs are missing.
I'd suggest a range trading day between .8970/.9040. I'm sticking with my long position, still more in hope than confidence. Let's see what happens.
Emerging markets finally take a breather
- South American EMs were relatively quiet overnight but not before INR and TRY made fresh lows against the USD;
- Profit taking also emerged in US Treasuries with dip-buyers emerging;
- USD/JPY looks most interesting of the majors, with traders eyeing important technical levels ahead of 99.10;
- AUD/USD recovered on the back of AUD/JPY buying and has managed to stabilise around .90 cents;
- The GBP lost some of its gloss, with short-term profit takers the main driver after dovish comments from the BOE Weale;
- EUR/USD has steadied around 1.3350 with decent orders reported 70 pips either side; buyers at 1.3280 and sellers near 1.3425.
I reduced my cable longs yesterday but am still long AUD/USD. USD/JPY seems to be the great unknown factor here; if it breaks higher then the USD is likely to gain across the board (at least once the cross flows have dried up).
I'm expecting a quiet day today given that EMs quietened down overnight.
Fed tapering likely underway already
Many traders who follow Fed action in Treasury auctions are increasingly convinced that the Fed has already begun it's 'stealth tapering'. They won't be announcing 'when' in September, they will be announcing that it's already begun. The only question will be how much. Little wonder that the USD/JPY bulls have begun to stampede.
Catch you tomorrow when I think USD/JPY and US 10-year yields will be higher but the other major pairs should be relatively unchanged.
Update on FXWW-RM chat-room
- If you applied for a free trial of the new FXWW chat-room on Reuters Messenger then you should have received an email from Reuters today.
- Presently we are only granting access on a 'read-only' basis; firstly because we want to be sure that contributors have good-quality information and ideas to share, and secondly because we want to keep the number of contributors at a reasonable level or otherwise the information scrolls off too quickly.
- We are still in start-up mode so most contributions are during the Asian and European sessions.
- It's impossible to have 'direct messaging' contact with everyone, and we have now hundreds of traders already in the room. Please don't be upset if any of the traders/analysts in the room don't respond to your requests; that's simply not feasible with so many members.
- Finally, many thanks for all your emails and suggestions; I will get around to responding as soon as possible.
Quick overview of Asian trade
- Focus still on EMs, with USD/INR making fresh highs above 65.00 before RBI stepped in to slow it down;
- Market starting to turn bullish again on USD/JPY, with technical traders eyeing a wedge on daily charts with top near 99.00/10;
- Comments from BOE Weale that they would consider more QE under certain conditions sent the GBP down from 1.5660 to 1.5600;
- AUD/USD fell early as proxy-trade for EM currencies but rebounded strongly after HSBC china PMI data;
- AUD/JPY buying out of retail Japan was significant driver;
- Support levels noted in EUR/USD at 1.3280 and in cable at 1.5570, USD/JPY resistance should be very firm 98.60/75.
Central banks still trying to stem USD/AXY momentum
The Reserve Bank of India are in the market trying to stall the rampant move higher in USD/INR which surely must run out of steam soon? Highs above 65.00 have been reported.
Despite this, AUD/USD has bounced back from earlier lows, mostly on the back of AUD/JPY buying by Japanese retail accounts. I managed to survive the earlier push lower with my AUD/USD longs but will reduce or exit on any decent rallies back toward .9100.
Elsewhere, decent bids reported in cable near 1.5570/75 with stops below 1.5560 and decent support in the EUR/USD near 1.3280.
Changing my tune on the USD
- USD/AXY moves are telling us something very loudly;
- EUR/USD and cable are sitting close to technical resistance levels at 1.3425/50 and 1.5750 respectively;
- USD/JPY in a wedge pattern between 96/99 but a topside break could really have the bulls chasing hard;
- AUD/USD and NZD/USD weakness is becoming entrenched.
I reduced my cable longs a little earlier and am within a few pips of my AUD/USD stop-loss. Once done, I'll be staying out of the market until the lights get brighter.
GBP outlook: Still looking strong on the crosses
- The GBP has eased lower in early Asian trade after BoE Weale said further QE could happen under certain circumstances;
- Cable needs to break above strong resistance at 1.5750 in order to generate further bullish momentum;
- EUR/GBP maintains bearish bias whilst below .8600;
- GBP/AUD made a bullish break above 1.7350 and buying dips is preferred for medium-term test of 1.8150.
USD/JPY outlook: 96/99 consolidation with bullish bias
- USD/JPY looks and feels bullish but we've read this book before;
- Charts show wedge consolidation between 96/99 (see chart) with an eventual bullish break favoured;
- Diverging CB policies is very bullish for USD/JPY;
- Soft risk sentiment is weighing on the Yen crosses, hence the current impasse.
- On the day, buying dips towards 97.30/35 looks like best play.
AUD/USD outlook August 22nd: Targeting .8850 test
- Main risk event today is the HSBC China PMI;
- Close below .9000 is psychologically important and keeps bearish pressure in place;
- .9200/30 is now looking like formidable resistance;
- Crosses like GBP/AUD in particular look very bullish;
- Change of government likely to be bullish AUD but that's over 2 weeks away;
- I'm still long AUD/USD but it seems only a matter of time before my stop is triggered, and I'm hoping rather than confident of a spike higher so that I can reduce my position again.
FOMC minutes fail to add clarity
- The USD has made modest gains against the EUR and JPY over the last 24 hours and has made significant moves against the AUD and NZD;
- This still looks like a cross-driven market to me with pairs like GBP/AUD making big moves higher;
- Nevertheless, with EUR/USD close to interim highs and USD/JPY threatening a break-out, we could possibly enter a phase of strong USD;
- AUD/USD close below .9000 is a bearish event, base-pickers like myself need to take a cold shower and reassess.
Flows and orders updated
- Two big German corporates noted sellers of EUR/USD in early European trade but real money funds seen buying dips.
- Large bid noted at .9005 in AUD/USD but stops expected below .8995.
- USD/JPY; solid demand noted throughout session and dealers report stops at very regular intervals above the market (may go to market rather than waiting for FOMC minutes?)
USD/AXY remains well bid as repatriation flows dominate
The main two movers in recent sessions, USD/INR and USD/IDR, are both over 0.5% higher late in Asian trade. Indonesian authorities have just reported that some new economic measures will be announced on Friday; as yet no effect on the market.
The AUD and NZD have again been the main losers amongst the majors with EUR and GBP staying quiet.
USD/JPY has rallied somewhat after reports from the Nuclear Regulation Authority and talk of tax hikes all hit the Yen, but it's been 'noisy' rather than impulsive.