Look to emerging markets for key to today's movements in Asia
Unless you have a professional news platform, it's pretty hard to keep up with exactly what's happening in the emerging markets, certainly hard to keep up with the live events. You can keep an eye on sites like http://www.reuters.com/finance/markets/asia which will keep you updated with any big events.
Wall Street steadied overnight but I'm not sure this will be enough to steady the panic that's been seen in some EMs; I guess we will soon find out. I'm out for a few hours but will be back for the London open.
GBP/USD: Still long, still like it; 1.5750 critical resistance
I'm not sure that my timing is correct on this trade but I will persevere as I believe that the GBP is due for a serious correction against all of the other majors.
- The short-term charts are bullish and there has been no sign of any major dips despite the big gains (see chart).
- Crucial technical resistance at 1.5750; break and close above raises prospect of a double bottom (see chart).
- EUR/GBP is back below its pivot at .8600.
AUD: Looking heavy on the crosses
- EUR/AUD closed back above it's previous pivot at 1.4750.
- AUD/JPY fell vertically at times yesterday.
- AUD/USD was stalled by Sovereign bids yesterday ahead below .9040 but has failed to bounce much.
I remain long of AUD/USD with a stop below .8950 as I feel we will get extended range trading between .90/.93 ahead of the general election. The present risk environment is obviously against this trade but excessive short-positioning and the risk-reward ratio are both in my favour.
USD/JPY: Plenty of sideways trade
- Fed tapering and BOJ expansion ensure a bullish set-up for USD/JPY;
- But, the market is already very long;
- And, risk aversion across Asia is encouraging JPY buying.
More sideways trade ahead but we cannot ignore the fundamentals or the positioning. I think we may get a downside clean-out fairly soon when longs lose patience but be prepared to buy that big dip in line with fundamentals.
EUR/USD: Main risk still to the topside
I think you just have to read the comments on this or other sites to realise that the overwhelming sentiment in the market is bearish on EUR/USD! Most traders are looking to sell rallies for the 'inevitable' fall to 1.20 but the claims of the Euro's demise have been greatly exaggerated.
Structural flows remain primarily EUR positive according to the major banks and the speculators will only get bearish again if more bad news starts breaking inside the EZ. For now, I'd look to buy dips back towards 1.3350 looking for 1.3525/50 especially whilst the repatriation flows out of the EMs continue.
Asset managers still fleeing emerging markets
- The main factor in the financial markets is the exodus from Emerging Markets by professional investors ahead of expected Fed tapering in September.
- The AUD is the proxy trade amongst the FX majors for EM/risk and it fell heavily over the last 24 hours against the other majors.
- The EUR benefitted from sizeable in-flows, most likely from the same asset managers exiting EMs, and is currently resting near medium-term range highs at 1.3425 against the USD.
- USD/JPY is stuck in sideways trading mode, whilst the GBP took a back seat to the EUR leads.
EUR/AUD: Topping formation negated; buy-dip proposition once again
Yesterday we had strong support at 1.4450 holding firm in EUR/AUD and today the prospective topping formation has been negated by the break back above 1.4750. Looks like a clear buy-dips proposition once again.
AUD/JPY slicing through support levels
Heavy selling is being reported in all of the Yen crosses with risk-aversion very high across all markets. Emerging markets are still bearing the brunt of heavy repatriation flows and AUD/JPY has taken the biggest hit amongst FX pairs.
Next technical support in the cross is near 87.25.
Watch for ACBs selling EUR/USD into early Europe
Massive moves happening in all emerging markets today and Asian central banks have been selling the USD in size. We can expect to see some reserve diversification in early Europe, with ACBs likely to sell EUR/USD to keep their reserves balanced.
AUD/USD: Adding to longs at .9075
- AUD/JPY support at 88.70 has broken but there has been no significant follow through.
- EUR/AUD has rallied over 250 pips since yesterday and is nearing resistance levels at 1.4740/50.
- The break-up acceleration level in AUD/USD was at .9050 and that level should provide solid support.
I reduced my longs last week at .9200 and am happy to re-buy partially at .9075. If it breaks below .8950 then I'm well-and-truly wrong.
Edit: USD/INR is making fresh highs and the continued panic in EMs is affecting AUD sentiment. AUD/USD trading near reported Sovereign bids at .9050.
Factors to watch for in early Asian trade
- Do we see a continuation of the major flows out of emerging markets? In Asia, the INR and IDR have been particularly hard hit whilst overnight it was the BRL which took the brunt of repatriation selling.
- What happens to the Nikkei? USD/JPY will take its lead from the equity markets.
- RBA meeting minutes in 2 hours will add some short-term volatility but no lasting impact.
- Closest 'big level' to watch is 88.65/70 in AUD/JPY.
EUR, GBP still looking quite strong
- Any big move higher in EUR is likely to be driven by equity-manager flows according to bank research that I've read;
- Very important EUR/USD resistance levels remain near 1.3425 but with stop-loss buy orders likely above there, this level is a red-rag to a bull;
- On the crosses, EUR/GBP looks heavy whilst below .8600, EUR/CHF is in a 1.2250/1.2450 holding pattern and EUR/JPY is proving resilient near 130.00;
- The GBP is still heavily oversold on a long-term perspective against most other majors and I still believe that the overwhelming bearish sentiment (at the wrong levels) will lead to a significant GBP rally, especially against the USD.
AUD/JPY: Important technical support near 88.70
- This is the 38.2% retracement of the move from 86.40/90.10 and also recent lows (see chart).
- A break below there would open possibility of a double-top at 90.00 on short-term charts.
EUR/AUD technicals: Vital levels now at 1.4450/1.4750
- Very important daily support at 1.4450 was severely tested yesterday, yet it held (see chart).
- Topping formation is still relevant but prices will need to stay below 1.4750 for it to remain relevant (see chart).
Play the edges of this range and next medium-term bias will come from a break either side.
GBP continues to make gains on crosses; EUR/USD set to test 1.3425
- On technical side, EUR/AUD held important support at 1.4450 and bounced almost 200 pips;
- USD/JPY is stuck in neutral at 97.60 with several conflicting forces at play;
- Cable refuses to drop and the GBP was the strongest of the majors again overnight;
- AUD/USD should continue to trade between .90/.93 pre-general election but it looks like we may get a downside test;
- EUR/USD has also been quite resilient and a test of important medium-term resistance levels near 1.3425 looks likely.
Large NZD/USD demand noted in early European trade
It seems that some Swiss interests have large demand to buy NZD, and they have been piling into NZD/USD over the last hour of trade. I'm not sure if they are 'legging' into a cross position or if it's straight NZD/USD trade; I'm sure we will find out soon enough.
Asian market overview; only minor moves in AUD to report
- AUD/USD rallied from .9185 to .9230 on the back of decent hedge fund demand, trimming shorts is what I'm hearing.
- Plenty of solid offers reported on all major interbank near the highs.
- Reports of very unusual demand in Australian bond markets has given the AUD a boost.
- EUR/AUD again touched important support near 1.4450.
- USD/JPY chopped around 15 pips either side of 97.60 opening level. Higher US yields yet to have any major impact on an already long market. Expect more 96.50/98.50 range trading this week.
EUR/AUD: Sitting on important support levels
A clean break below 1.4450 would open the way up for a deeper retracement towards 1.4200 (see chart).