Very little in the way of any meaningful price action thus far on Monday, with all currencies consolidating their latest gains against the buck and contemplating the possibility of yet another round of strength. The Euro has been exceptionally well bid over the past several trading sessions, with technical traders scratching their heads after the market finally ended a sequence of nine consecutive daily higher lows on Friday to warn of a healthy corrective pullback, before totally negating this sequence-break and rallying to yet another multi-day high just shy of 1.3500.
Relative performance versus USD Monday (As of 10:10GMT)
The gains in the currency market continue to be driven by the latest Federal Reserve monetary policy statement which has signaled to the markets that the central bank is ready and willing to implement yet another round of quantitative easing should it be necessary. Since the decision last Tuesday, weak housing data has been the key stand out, and should economic data in the US disappoint more over the coming weeks, then we will surely see another round of accommodation.
On Monday thus far, we have already seen a much weaker than expected Japanese trade surplus which shows the dramatic negative impact of the stronger yen on exports and could start to scare away some of the yen bulls. Also generating some volatility in the yen has been the fiscal half-year end price action and hedging, and rumors of bankruptcy from Japan’s third largest consumer lender.
Meanwhile in China, despite some fresh highs for the yuan against the USD, the end result was rather unimpressive with the yuan depreciating at the fixing. Elsewhere, in the UK, Hometrack Housing was weaker than the previous print, while Bank of England Sentance was out with some hawkish remarks after saying that the BOE should look to raise rates soon. Finally, in the Eurozone, the IMF said that it saw German GDP growth at 3.3% in 2010, and 2.0% in 2011, while a Moody’s downgrade of some subordinated debt at Allied Irish Bank’s helped to keep Euro gains well capped below 1.3500.
Looking ahead, the North American calendar is quite light, with the Chicago Fed national activity index (-0.50 expected) due at 12:30GMT, followed by Dallas Fed manufacturing (-7 expected) at 14:00GMT. With the economic calendar so anemic, market participants will undoubtedly look to broader global macro themes for clearer directional bias over the coming hours. US equity futures are pointing to a mildly firmer open, while commodities are also bid with gold consolidating just under its recently set record highs by critical psychological barriers at $1300.
EUR/USD: The market continues to extend gains with the latest recovery now trading into the 1.3500 area ahead of the latest minor setbacks. While the overall bullish structure remains firmly intact at present, it is worth noting that the 1.3500 figure coincides with the 50% fib retracement off of the major 1.5000-1.2000 move which could act as a formidable resistance point on a close basis going forward. The daily RSI has also crossed up into overbought territory to further warn of the need for some form of a corrective pullback. However, a break back below Friday’s low by 1.3285 will be required at a minimum to relieve topside pressures and trigger a short-term corrective decline.
USD/JPY: Rallies have stalled out for now by the 50-Day SMA and just ahead of the Ichimoku cloud bottom to warn that the downtrend is still very much intact. It now looks as though a medium-term lower top is attempting to carve out by 85.95 ahead of the next major downside extension back below 82.85 and towards the record lows at 80.00. A break back above 86.00 would be required to negate outlook.
GBP/USD: The latest break back above 1.5700 threatens the integrity of the downtrend and potentially exposes a move back towards 1.6000 over the coming sessions. The 78.6% fib retrace off of the 1.6000-1.5295 move comes in by 1.5845, and a close above this level will significantly increase the likelihood for a full retracement to 1.6000. Inability to close above 1.5845 keeps the prospects for a bearish resumption intact.
Prop accounts on the bid in GBP/CHF. Asian central bank bids in EUR/USD; option barriers by 1.3500. Stops below 84.00 in USD/JPY. Soveriegn accounts on the bid in USD/CAD below 1.0200. Official interest in USD/CHF.
TRADE OF THE DAY
CHART 1USD/CHF: Setbacks have finally stalled out ahead of the critical record lows from 2008 by 0.9645, with the market finding a bottom for now by 0.9780 ahead of the latest minor bounce. Short-term and medium-term studies are certainly looking quite stretched and longer-term cyclical studies warn of a major bottom. Friday’s close is quite constructive with the market extending to fresh lows and rejecting the move lower before closing back by daily opening levels. This sets up the potential for a short-term reversal, with a break and close back above 0.9880 to confirm bias and accelerate gains. Inability to establish back above 0.9880 will however keep the downtrend intact and leave the door open for a retest of the record lows by 0.9645. STRATEGY: BUY @0.9885 FOR AN OPEN OBJECTIVE; STOP 0.9770. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON MONDAY.