EURJPY - Bring on the Risk
Risk buying continued up till the FOMC release after the CPI numbers came in as expected and the other numbers better than expected. The FOMC minutes called for higher unemployment but suggested that we would come out of this recession faster than originally anticipated. I can’t stop laughing either, but the market believes it and so we’ll go along for the ride and when the music stops we’ll be the first ones sitting down.
EUR/JPY continues to stab higher after Intel reported better than expected earnings and higher growth expectations going forward. The Intel report along with Goldman Saks earnings release on Tuesday has put the market back in the mood to buy risk. The EUR appears to be the strongest currency as commodities (oil & gold) begin to breakout again. The FOMC meeting minutes today warned of a cautious outlook on employment, but in the same report upgrade 2009/2010 GDP. The market has taken this in stride and appears to be eying S&P 950 as its next resistance point. A rally of this nature should be supportive of the euro and the yen should fall accordingly.
As often is the case, when there is a strong close in the New York session, Asia will fade the move and it will be resumed in London. It ought to at least break through New York’s high and may stretch even further.
Roland Campbell and Caleb Salmon
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EURUSD, the Sleeper
The Euro is stronger than it looks. After a hard reversal near 1.3800, a higher high at 1.4071, and a strong daily close, the Euro looks ready to test the topside or at least run the stops in the 1.4070 area. Its upside after that might be limited, but we ought to get at least that much action.
Fundamentals
ZEW economic data is due out tonight. Short squeezes appear to have happened on a regular basis throughout the last week and gives good indication that there are too many shorts in the market at this time. Often news reinforces the trend and the direction will go against the majority of players in the market at the time the news comes out. Strong equity market closes today will also no doubt cause the Euro to advance quickly once London opens.
Technicals
After being rejected at the 1.4000 level twice in the Asian session, price has recovered quickly and continues to press the area. A four hour trendline has also been suppressing the price, but the fact that it has remained this strong during the Asian session is indication that price will advance.
Risk Factor
Should the ZEW data come out much worse than expected, it might overshadow the other factors, but it is an acceptable risk and is factored into trade parameters.
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The Chicken, the Dog, the Peacock and the Ostrich
The dollar’s rebound has been muted over the last few weeks as it has tried to retreat from its recent lows made against the majors over the last couple months. It has been offered strongly on every push higher and would indicate that the trend is intact even if there is a correction in progress.
EURUSD - The Chicken
The euro appears to be the strongest currency against the US dollar at the moment. Heavy sovereign buying is reported just under the 1.3900 and 1.3800 levels in the euro throughout the last couple weeks. It has met strong buying on every attempt to drive lower and it is clear that it is highly valued at those levels and is scared to test lower. If the dollar becomes cannon fodder this week, look to buy euros, or play one of the crosses, like EURGBP or EURAUD.
AUDUSD - The Dog
The Aussie dollar has been the weakest performer against the dollar for several weeks. Gold and equities have fallen hard and sentiment is skewed heavily against it. The daily chart looks like a drooling pit bull. Definitely the best pair to short against the dollar or one of the stronger currencies.
GBPUSD - The Peacock
After making a new high at the end of June and calling attention to itself, this pair turned out to be all feathers, no drumstick. It dropped 700 pips in one week and problems in Great Britain which have largely been ignored have resurfaced again. The good news is that it is way over bought on many of the crosses and creates some good bargains.
USDCAD - The Ostrich
The Canadian dollar created the stiffest trend against the USD during that period and remains the “hot hand” of the second quarter versus the dollar. It is my favorite setup of the week and if this bird pokes its head up to the 1.1800 area, dibs on the drumstick.
Fundamentals
Canadian news has come in strongly over the last few weeks and their economy does not seem to be as bad as traders previously thought. Oil has hit major support in the $60 area and should at a minimum cap gains in the USDCAD.
Technicals
After bouncing precisely from prior weekly highs in the 1.0800 area, the USDCAD rebounded 800 pips to resistance in the 1.1650 region which is also the 38.2% Fibonacci level of 1.3061/1.0786. The 1.1800 level is hard support and resistance on the daily and weekly time frames and we believe it will hold strong here if it is tested this week. This pair appears to be “rolling over” on the daily chart and looks to be a high probability trade.
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Not Too Late to Score on USD/JPY
The story of the week has certainly been the USD/JPY which dropped 230 pips in less than 90 minutes. If you missed out on that move it is certainly not too late to get some pips out of it. It was initially touched off by an option expiry on 94.00 at 11:00 EST and then the bottom fell out of it. Numerous explanations have been given, but the bottom line is that risk traders were counting on a global recovery that is simply not happening, and they were forced out of their risk assuming trades at the same spot.
Fundamentals
We believe that the trend is down again in equities and risk assets as latecomers bought in heavily over the course of the second quarter thinking that the recovery is real, but now it is apparent that it will take longer. The SP 500 has been pushing toward the 870 support barrier in a way that would indicate it could give way soon, bringing on more risk aversion and more appreciation in the yen against all others. The Fed and other central banks have their backs against the wall as there is little they can do now with interest rates to further stimulate the global economy. Direct monetization has had immediate negative consequences against the easing country’s currency, and it would take exponentially more monetization to have the same stimulating effect. The bottom line is that all mal-investment need to be unwound before recovery can happen, and hiding them under an ocean of liquidity will only delay true recovery.
Technicals
When there is a hard move such as we just experienced in the yen like this, the prior support levels become strong resistance levels as everyone who missed out on it is looking to get in on a retrace. For this reason I believe good selling opportunities exist at 93.85, 94.50 (confluence with 38.2% Fib) and 95.00, to be determined by market conditions at the time of entry.
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GBP/USD Likely Headed To 1.50
Trade Analysis: GBP/USD has continued to trade bullish since the IR announcement on Thursday. A rate cut of only 50 basis points was seen as bullish and traders seem to have an appetite for the pound. The pair has run nearly 1,500 pips from the bottom and shows few signs of retracing significantly. I am attempting to enter the pair on slight pullbacks and hold on to it for a move back over psychological resistance at 1.5000. I anticipate many institutional stops reside in the 1.4970 to 1.5030 region. Once cleared the pair will likely fall back a bit on profit taking and lose some of its momentum.
Pivots: GBP/USD is trading above major pivot areas which are short term bullish. The key levels to watch are 1.4650 on the downside (break out area on Friday) and 1.4850 on the upside (representing monthly highs seen today).
Risk: A reversal in risk sentiment caused by breaking news or poor corporate earnings. The equity markets in Japan are showing resilience after a very poor NFP report out of NY. The job losses and unemployment rate were expected so the market has rallied in relief that nothing worse was found. The whisper for NFP was 600k + so the market saw this as an upside hit and pushed shorts out of dollars against the euro & pound. Should this sentiment change the dollar could begin to rally against the majors and force a reversal in this pair.
Reward: A move towards 1.50 appears to be in the cards. After numerous pullbacks the Pound has continued to recover substantial losses incurred in early 2009. A weak dollar could add fuel to an already volatile pair and push it towards our TP area in a short period of time.
Time Frame: 6 to 36 hrs
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