Fundys – Another session of fresh 2009 highs for many of the major currencies against the buck with higher equity prices and surging gold to $1020 helping to fuel the gains. On the day, the New Zealand Dollar and Australian Dollar have been the stand out winners, while the Yen has also been attracting sizeable interest. Some currencies however have not fared as well, with both Sterling and Swissie flat to lower against the greenback. Stronger data out of Switzerland in the form of retail sales and ZEW, along with slightly better than expected employment numbers out from the UK, have failed to materially prop either currency, with other broader themes dominating trade and driving the relative weakness. Any strength in the Swisse at current levels is sure to force some profit taking on fears of another SNB intervention, while Sterling has been weighed down on Tuesday’s downbeat and dovish central bank comments in which the BoE signaled that they would look to reduce the discount rate. Sterling has however recovered somewhat on the morning’s data and upbeat comments from BoE Sentance who says that he expects a much better year in 2010. In Japan, newly elected PM Hatoyama says the outlook for the domestic economy is still unclear. Market participants have also found great comfort in the recent comments from Fed Chair Bernanke who said that the recession is likely over. Finally, in Sweden, the krona has posted some nice gains following the upbeat and hawkish Riksbank minutes. Looking ahead, Canada manufacturing shipments (2.5% expected), US CPI (0.3% expected), and the current account balance (-$92B expected) are due at 12:30GMT, followed by TICs data ($60B expected) at 13:00GMT and industrial production (0.7% expected) at 13:15GMT. NAHB house data (19 expected) caps things off at 17:00GMT. US equity futures point to a firmer open and look to extend gains to fresh 2009 highs on Wednesday.
Techs - EUR/USD The daily RSI is now above 70 warning of a near-term pullback but the market still shows willingness to race higher with the key highs from late 2008 by 1.4720 in sight. Look for this level to be easily taken out on Wednesday with additional gains seen to the 1.4780 area before the market finally looks to establish a top and reverse course. USD/JPY (See below). GBP/USD We continue to maintain a sell on rallies approach to this market with the view that the pair has made a meaningful high above 1.7000 this year. The ensuing price action is more choppy consolidation than any threat of a fresh upside extension beyond 1.7000. Arguably, the market could even be in the process of carving the right shoulder of a head & shoulders top that ultimately would project setbacks to 1.5000 over the coming weeks. Friday’s 1.6745 high is expected to cap any additional intraday rallies, while back under 1.6520 should accelerate declines. Only a close above 1.6745 would give reason for concern. USD/CHF The recent break below 1.0370 now opens the door for a deeper drop into the 1.0200’s over the coming hours. However, daily studies are now oversold and we would recommend looking to take advantage of any dips towards the 1.0200 figure to establish a very playable long trade. The 1.0200 figure coincides with the 78.6% fib retracement off of the major 2008 low-highs and should serve as a formidable level to prop any additional declines.
Flows – Asian account bidding USDs. System funds looking to sell Usd/Cad. Model funds on the bid in Eur/Usd; stops above 1.4720. Option barriers in Usd/Jpy at 90.00.
Trade of the Day – Usd/Jpy: With daily studies so heavily oversold, it is simply too hard to ignore looking for opportunities to buy the pair. The daily RSI tracks well below 30 and the daily ATR has also already been exceeded on Wednesday. This leaves the market trading just above key psychological barriers by 90.00 which at this point should be tested. However, with the 78.6% fib retracement off of the major 87.15-101.45 move also coming in by 90.00, any additional setbacks are seen limited, with the greater risk from here for a sizeable corrective bounce back above 91.65. A rebound out from 90.00 today and subsequent break back above 91.65 would also trigger a double bottom that would project gains to 93.30. In our view, this is the last chance for a rebound, or a full retracement will be seen back to 87.15. STRATEGY: BUY @90.00 FOR AN OPEN OBJECTIVE; STOP 88.40. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON WEDNESDAY.
P&L Update and Overview: Many of you have been asking for a way to better track trading results and open positions. In response to these requests and in an effort to be fully transparent, a simulated portfolio was created in June to track and mirror all recommendations and trades. Below is a return on equity curve since inception on June 1, 2009, along with an open and closed position tracker. I am hopeful that this will make things easier for you all.
Additionally, please feel free to check out a full profit and loss statement since inception on June 1, 2009.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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