OPENING COMMENT
The pullback in US and Asian equities has been felt in FX market on Friday, with all major currencies tracking lower against the USD on safe haven buying. Nevertheless, the greenback remains under intense pressure after the USD Index managed to put in its 10th consecutive negative close on Thursday to fresh 2009 lows. On the day, Kiwi has held up the best against the buck, while Sterling continues to be heavily weighed down. It has not been a good week for the single currency which initially suffered on the back of some downbeat and dovish comments out from the Bank of England, and most recently has come under some more pressure as the WSJ published an article discussing the use of the pound as a funding currency for carry trades. The Euro has also held up relatively well, with the latest better than forecast trade balance attributed to the relative strength. Looking ahead, German producer prices (0.2% expected) are due at 6:00GMT, followed by Eurozone current account at 8:00GMT. Data in the UK caps things off at 8:30GMT with the release of public finances and public sector net borrowing. At the earlier stage in the day, US equity futures are pointing to a lower open, while commodities are mixed.
ANALYSIS OF SELECTED RATES
Gbp/Aud: We continue to look for opportunities to buy this beaten down cross with the market at 20+ year lows and now eyeing the critical lows by 1.8740 from May 1996. At this point we see the 1.8740 level being taken out but do not see any setbacks extending much beyond this point. Not only are daily studies tracking oversold at this point, but weekly studies are also unhealthily overextended and show the need for a major upside reversal and mean reversion. The closest SMA right now comes in the form of the 10-Day which trades much higher by 1.9100. As such, we will look to employ our ATR analysis to try and capture an ideal counter-trend long entry on Friday. The market moves on average some 200 points a day so we will use a wider stop-loss to leave the appropriate amount of room for the trade to be able to materialize. If the market gets going in our desired direction, there is tremendous upside potential. STRATEGY: BUY @1.8700 FOR AN OPEN OBJECTIVE, STOP @1.8450. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE ON FRIDAY.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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