Gold could come to the rescue of beleaguered AUD
The bears are rampant in the AUD at the moment and there seems to be no prospect of any sort of rally but I remain a non-believer. Yes, I tried to pick a bottom above 90 cents and luckily managed to jump off that lift before it collapsed, but my sentiment hasn't really changed and longer term I think these levels will prove to be cheap in the AUD/USD in particular. We certainly still have scope in pairs like EUR/AUD to return to more neutral levels but elsewhere the AUD selling is way overdone; do you really want to sell AUD/NZD at 1.14, or AUD/JPY at 87 given all the BOJ expansion? Well that's what the market is doing and it's doing so in size, if positioning reports are to be fully believed.
The RBA seems certain to cut rates tomorrow (certainly not 102% certain like the market is pricing in!) and that is adding more fuel to the bear's fire but all that's needed (given current extreme positioning) is one trigger to cause a really hefty dose of short-covering. I have a feeling that this trigger might come from Gold. The yellow metal is back above $1300 and looks to me like a market that is short and hopeful, rather than short and confident. I think there is a reasonable chance that a major low is already in place and if it starts taking out important technical resistance levels, then it will drag the AUD with it, whether the bears like it or not.
USD/JPY: Solid demand but not much bounce yet
Our hedge fund insider @FXWW888 is reporting that Japanese Lifers have been noted buyers in recent trade near 98.90. Prime brokers are also reporting solid demand near 98.65/70 but despite all this demand, the pair isn't bouncing much! The crosses, AUD/JPY in particular, are to blame for most of the Yen buying.
I'm still short USD/JPY from Friday and I don't see much reason to change my view just yet. I have a tight stops above 100, which was one of the attractions of this trade, so best be patient and see how the market develops later today.
AUD sliding after disappointing retail sales data
AUD/USD is hunting for stops near .8850 after disappointing retail sales data all-but confirmed an RBA rate cut tomorrow. My target is a weekly low and long Fibo near .8775 (see chart) and I've stuck a bid in there as I don't see the pair collapsing.
Bit of easy reading from Michael Lewis
Here's the latest Vanity Fair article from Michael Lewis, again related to Goldman Sachs.
EUR/USD: Topside test favoured
I still am sticking to my view that we are in a medium term sideways range trade between 1.2750/1.3400. We are nearing the upper end and there will be stops building above 1.3450, so the natural market reaction is to be attracted to these big levels. Short-term, buying dips favoured; medium-term, risk-reward favours selling rallies; long-term, I think it goes higher.
USD/JPY: Selling rallies favoured intraday
- Like I wrote below, positioning is still the main factor at play here.
- Some of the crosses like NZD/JPY and AUD/JPY look technically very heavy.
- Obviously need to pick levels carefully but selling towards levels near 99.50 with a stop above 100 make good risk-reward sense.
AUD/USD: Likely to range trade ahead of RBA tomorrow
- AUD/USD still looks technically extremely oversold but no sign of a bottom forming.
- AUD/NZD has rallied strongly from 1.12 base, but on back of NZD weakness rather than AUD strength.
- AUD/JPY is mid-range at 88.00 but looks like a sell-rally proposition whilst still below 89.50.
- Overall AUD positioning is at extreme levels which means that we will get a severe short-covering rally as soon as any good news breaks.
Looks like it should trade .8850/.9000 over coming sessions and I'm happy to throw in a speculative bid near .8775 technical support.
NZD falls hard on Fonterra tainted milk scare
The dairy industry is very important to New Zealand and Fonterra is their biggest dairy exporter. News broke yesterday that some of their milk powder products are contaminated with a dangerous strain of bacteria and this has caused some countries like Russia to put a ban on imports.
NZD/USD fell by nearly 2% in early interbank trade to level below 77 cents, after closing in NY near .7850. AUD/NZD has jumped to 1.1500 and resistance should be very solid here; so if you managed to pick the 1.12 bottom, booking partial profits looks like a decent idea.
USD/JPY: Positioning still the great unknown, risk-reward favours bears
Pretty much every analyst you listen to is trying to outdo one other with their bullish USD/JPY calls; 105 is conservative, 110/115 is normal, and only calls for 125 or 200 (as in one case) are getting much airtime. The case for the bulls seems watertight; USD sentiment is bullish and their economy is seemingly on the improve whilst the Japanese government is intent on driving the Yen lower.
So what can go wrong for the bulls? Very simply that the 25/30% move higher that the analysts are calling for in USD/JPY has already happened! Everybody seems to forget that we spent months and months trading below 80 and from there we rallied almost to 105 on the back of much looser BOJ policy and an improving US economy.
That's not to say that we don't get another 25/30% rally but what we must also remember is that traders are much cleverer than analysts. The big clever traders have been long since 80 and have been building macro long positions up through 85 and 90. We've already seen one of the biggest macro funds dump their positions in early April causing USD/JPY to fall 10 big figures. There are other big positions out there (and I'm talking multiple macros with positions of 15billion+); perhaps we do go up in a straight line and these guys make squizillions but it's August and many are going on holidays. It's a dangerous time for these traders.
Timing is everything in the FX market and its impossible to pick the next 150/200 pips with any high degree of accuracy. But, the best risk-reward in USD/JPY for mine is in being short. If the big macros start bailing, we will be back at 90 very quickly.
NZD/USD under pressure in early European trade
Technical resistance around 78.60 in NZD/JPY (see chart) has held nicely and straight NZD/USD has taken a bit of a hit in early Europe. I don't trade the Kiwi but with AUD/NZD starting to attract profit takers and with NZD/JPY starting to obey technical signals, selling the NZD/USD on rallies looks like the way to go. Next support in NZD./USD is at 78.50.
Quiet in Asia apart from few stop-loss runs
- Gold triggered stops below $1300 as USD bulls return ahead of NFP
- USD/AXY also busy with solid demand reported across most regional currencies.
- AUD/USD stops triggered below prior lows at .8910 after low PPI readings.
All about the NFP lottery tonight and the fact that the USD bounced back so strongly after MSCI-related selling earlier in the week is certainly impressive. Looks like the market wants to buy the USD so bears should keep their stops tight.
USD/JPY: Option buyers likely to appear above 100
FXWW888 is reporting in the chat-room (patience needed :) ) that option players are likely to start chasing USD/JPY higher if it breaks above 100.00. Good enough for me, I'm short at 99.50 and I'll put my stop now at 100.05.
AUD: Media speculation ahead of economic statement
There is some speculation floating around in Australian media ahead of the 1pm economic statement, that the unemployment rate forecast might be raised to 6.25% and that the balanced-budget deadline will be pushed out.
AUD/USD still trading near 89 cents.
Medium-term EUR/USD bullish trade idea
Mainly based on expected flows with some technical backdrop; buy EUR/USD at 1.3125 and add at 1.3075 looking for a resumption on up-trend to 1.3400, keeping stops below 1.3000. (R/R = 3:1).
See chart; bids expected to be very solid below 1.3100 (but as always be careful around the time of the NFP lottery).
AUD/USD: Need to look to weekly charts for some support levels, .8775 next big one
There is a prior weekly low + a long Fibo at .8775 which is the next technical target (see chart).
USD/JPY: Happy to sell here near 99.50
All the cloud players will be very happy as the base held so well at 97.55 and gave them a 200 pip bonus. I'd now expect to see Tokyo taking some profits after a big move and I think we will struggle to break much higher today. I've gone short at 99.50, let's see what happens.
AUD outlook: Friday August 2nd; selling rallies favoured on crosses
- AUD/USD: Failure to re-take prior lows at .9010/35 has the bears still in technical control.
- AUD/JPY: Sharp profit-taking recovery underway but there is very strong technical resistance ahead at 89.30/50 (see chart).
- AUD/NZD: Got tantalisingly close to 1.1200 and has since bounced by over 100 pips on the back of heavy profit taking.
Overall it looks like a day for healthy swing trades in the AUD, especially with the NFP lottery later tonight.
Please be patient whilst we transition over to new chatroom
This is a new product, in collaboration with ThomsonReuters, and I would ask for your patience over the next 2 weeks whilst we transition over to a chatroom on their platform. My blog will continue to function as before and I will keep most of my trade ideas, as well as funds management developments, on here. Those who like things a bit faster will enjoy the new format.
By the way, anyone who already has a Reuters Messenger log-in should send me an email to sean@fxww.com and I will permission you straight away. The others must wait patiently whilst we work through technical issues and then on-boarding.
RM is of course the communication-method-of-choice for professional traders and there will be plenty of really interesting insights from these types of traders.