The big story in the European session has been the better than expected UK employment data. While the data still shows deterioration in the employment sector, the slowdown in the pace of declines can be interpreted as an encouraging sign. Sterling has managed to mount an across the board recovery and now stands out as one of the top gainers on the day.
MORNING SLICES
Fundys – The big story in the European session has been the better than expected UK employment data. While the data still shows deterioration in the employment sector, the slowdown in the pace of declines can be interpreted as an encouraging sign. Sterling has managed to mount an across the board recovery and now stands out as one of the top gainers on the day. Meanwhile, the Yen is the strongest currency, while the Euro has only posted marginal gains against the buck and lags. In the Eurozone, industrial production has come in slightly weaker, but this has failed to prevent the single currency from putting in fresh 2009 highs against the USD above 1.4900. All said, the buck continues to get slammed to new lows on any form of a rally, with market participants growing increasingly convinced that the once mighty USD has now officially lost its status. There have been articles out from many major newspapers each day discussing the fall of the greenback and this has not helped to bolster any confidence in the buck. Moreover, there has been little to no effort on behalf of US officials to defend the beleaguered currency. This in conjunction with a market holding a healthy risk appetite and looking for more attractive yield continues to weigh on the prospects for the USD. Overnight data from China reinforces, after the economy produced some robust trade figures, which helped to boost the higher yielding currencies to fresh 2009 highs. The USD Index has also managed to plummet to a fresh 14-month low. Australian consumer sentiment impressed to the upside, with Aussie rallying to highs by 0.9150, while Kiwi could also not be stopped, despite concerns from the FinMin over the strength of the NZD. In Japan, as expected, the BoJ kept its call rate unanimously unchanged at 0.10%. However, it was comments from FinMin Minezaki that generated more attention, after the official said that the USD weakness was likely to persist. This has helped the Yen to outperform across the board on the day, up some 0.80% against the USD. Interestingly enough, the broad based USD weakness has not prevented a concurrent weakness in the Yen crosses, which traditionally warns of an elevated risk aversion. Looking ahead, US retail sales (-2.1% expected) and import prices (0.1% expected) are due at 12:30GMT, along with Canada new motor vehicle sales (0.0% expected). Business inventories (-0.9% expected) then follow at 14:00GMT, with the much anticipated FOMC Minutes capping things off at 18:00GMT). US equity futures point to a stronger open, while commodities also remain well bid with gold shining and approaching $1100. |
Techs - EUR/USD The break to fresh 2009 highs beyond 1.4845 on Tuesday ends the hopes for a double top formation on the daily chart and now opens fresh upside back towards psychological barriers by 1.5000 over the coming days. Ultimately, there is nothing to really stop the pair from even accelerating through 1.5000 to test the 78.6% fib retracement off of the major 2008 high-lows, which comes in between 1.5200-1.5300. USD/JPY As expected, the market has once again rolled over following the recent corrective surge, with the overriding downtrend still very much in force. Look for a lower top by 90.50 to be confirmed on the break below 88.00 over the coming sessions. Below 88.00 then exposes the critical matched trend lows from late 2008 and early 2009 by 87.17. Only back above 90.50 delays. GBP/USD The dip below the 1.5770 consolidation lows has been short lived and the market has since bounced rather impressively to trade back into the well defined range that has defined trade over the past several days. Rallies should now be well capped towards 1.6130, with only a break above to take pressure off of the downside and potentially shift the short-term structure. Back under 1.5700 is now required to accelerate declines. USD/CHF There is still the risk for the formation of a short-term double bottom on the daily chart, with a break above 1.0455 over the coming days required to confirm and accelerate back towards the 1.0700-1.0800 area. However, the latest round of setbacks to fresh 2009 lows must be well supported on a close basis above 1.0185 (previous 2009 low) in order for the bottoming formation prospects to remain intact. A close below 1.0185 will negate and open a direct test of 1.0000.
Flows – Asian central bank buying Eur/Usd. French Bank on the bid in Eur/Gbp. Middle Eastern accounts and Swiss Bank selling Cable. Stops below 1.0150 in Usd/Chf.
Trade of the Day – Usd/Cad: The daily RSI has crossed below 30 and studies are now looking quite stretched suggesting a near-term corrective bounce. While the trend remains intensely bearish at present, the pace of declines seems to be slowing with daily volatility indicators showing a contraction. This is often indicative of an impending break-out, which we contend will be to the upside. STRATEGY: BUY @1.0195 FOR AN OPEN OBJECTIVE; STOP 0.9995. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ) ON WEDNESDAY. POSITION SIZE SHOULD BE 3X EQUITY.
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.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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