Overall, a very solid round of data overnight has helped to keep USD bulls in check for the time being, with the euro recouping a good portion of its Asian setbacks, and most other major currencies tracking higher against the greenback on the day thus far. German producer prices were firmer, Swiss trade data was solid, and UK retail sales were outstanding, to help drive the latest price action.
Relative Performance Versus USD on Thursday (As of 11:20GMT)
- CAD+0.41%
- AUSSIE+0.36%
- SWISSIE +0.32%
- STERLING+0.30%
- EURO-0.03%
- YEN-0.12%
- KIWI-0.25%
However, despite this latest round of data, the gains in the currency market have been far less impressive than one might think considering the recent propensity and drive to want to sell USDs. Perhaps the marginal gains against the buck suggest that any additional weakness for the U.S. dollar is now limited with many seeing the buck as an attractive investment at current levels. It is also worth noting that despite the solid round of data overnight, risk trades have not performed well, with then Yen crosses failing to push higher, and the Eur/Chf cross trading lower.
Things have also not been all good, with RBNZ Bollard out with some downbeat comments on the New Zealand economy, while talk of some potential ratings downgrades to France also made the rounds. Right now we are seeing a bit of a divergence between US equity futures, which are looking for a positive risk session, and currencies which don’t appear ready to commit to either direction at this point. Meanwhile, the commodity markets are also providing no clues, as both oil and gold prices are relatively flat.
Looking ahead, U.S. continuing claims (4500k expected) and initial jobless claims (480k expected) are due out at 12:30GMT, along with Canada leading indicators (0.7% expected) and wholesale sales (0.4% expected). U.S. leading indicators (0.1% expected) and the Philly Fed (7.2 expected) are then out at 14:00GMT. On the official circuit, Fed Bullard is slated to speak on the topic of the economy at 16:30GMT.
GRAPHIC REWIND
TECHS
EUR/USD: In the process of consolidating the latest sharp setbacks out from 1.3330, with the market stalling out ahead of 1.2700 for now. The overall structure remains quite bearish however following a bearish weekly reversal formation and any rallies should be well capped ahead of 1.3000 in favor of the next major downside extension below 1.2700 and towards 1.2500 over the coming days.
USD/JPY: Critical support by 84.80 has finally been broken to open some fresh multi-year lows by 84.70 thus far. Next key support comes in by 84.45, with a break below this level exposing the monthly lows from June 1995 further down at 83.50. However, as we have already warned, daily studies are starting to look stretched, and with 84.80 finally broken, any additional declines should be very well supported ahead of 83.50 in favor of a much needed upside reversal. A break and close back above 86.40 will be required at a minimum to relieve downside pressures.
GBP/USD: Setbacks have stalled out for now by some formidable support at 1.5500 in the form of the 200-Day SMA. However, a bearish weekly reversal signal certainly warns of deeper setbacks ahead, and we look for any inter-day rallies to be well capped above 1.5700 in favor of the next major downside extension below 1.5500 and towards 1.5000 over the coming days.
USD/CHF: Continues to chop around after being very well supported on dips in the 1.0300’s. However, the latest recovery is still only classed as corrective within a multi-day range, and a clear break back above 1.0680 will now be required to accelerate gains and mark a shift in the structure. Broader market price action has been net USD supportive of late, so we would not be surprised to see a close above 1.0680 over the coming sessions. Back under 1.0330 negates and exposes a drop towards parity.
FLOWS
Corporate bids in Swissie. Macro names on the offer in Eur/Gbp. Asian central bank and sovereign demand for Eur/Usd. Model funds buying Aussie and Cad. Japanese exporter offers in Usd/Jpy.
TRADE OF THE DAY
USD/CAD: The Canadian Dollar has been very well bid of late and stands out as the outperformer on the day thus far, with the pair dropping back well below 1.0300 over the past few hours. While there is certainly room for additional declines into North American trade, the overall price action over the past several days has been much more choppy and consolidative, to suggest that any additional declines should still be limited. As such, we like the idea of buying into dips and see any additional weakness easily stalling out just below 1.0200 by the 78.6% fib retracement off of the latest Aug5-Aug12 low-high move. The daily average true range of 105 points also lends support to the idea, with a projected daily low coming in somewhere in the 1.0200 area if the markets continues to drop. STRATEGY: BUY @1.0195 FOR OPEN OBJECTIVE; STOP 1.0095. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON THURSDAY.
David Song is a currency analyst at FXCM.
