NZD/USD Short Taken @0.7195 (Morning Slices)

Published September 25th, 2009 - 01:59 GMT

The pullback in risk appetite over the past 24 hours along with comments from China that the USD has been a keen influence on global recovery hopes and that the US government should bear this in mind when setting policy, have helped to find some much needed bids for the beaten down buck.


Fundys – The pullback in risk appetite over the past 24 hours along with comments from China that the USD has been a keen influence on global recovery hopes and that the US government should bear this in mind when setting policy, have helped to find some much needed bids for the beaten down buck. However, it is still Sterling in the spotlight, with the single currency under an intense attack against all currencies following the very downbeat comments from Governor King, who also welcomed a weaker sterling to help rebalance the economy.  A draft of the G20 communique is doing the rounds with the Group seemingly agreeing to avoid any premature withdrawal of stimulus, until a durable recovery is secured. At that time, the Group also agrees that the withdrawal will be a coordinated one. On the data front, German Gfk consumer confidence came in better than expected while UK total business investment also came in a little better than forecast for the quarter. ECB Mersch was on the wires with a gloomy tone, after saying that it was too early to assume that the financial markets crisis was over for good. Meanwhile, the Canadian Dollar has been relatively week on comments from BOC Carney who spoke of the use of unconventional policy to stem out of line fundamentals. SNB Jordan also talked currencies after reiterating that the central bank would continue to intervene and counter any appreciation in the franc against the euro. S&P came out saying that the worst was over for the Japanese economy but conceded that the new government still had hurdles to overcome. The Yen is the strongest currency on the day heading into the US session, while the Canadian Dollar and Sterling are the laggards. Looking ahead, US durable goods (0.5% expected) are due at 12:30GMT, followed by Michigan sentiment (70.5 expected) and new home sales (441k expected) at 14:00GMT. On the official circuit, Fed Warsh is slated to speak at 17:15GMT at the Chicago Fed’s Banking Conference. US equity futures point to a slightly firmer open, while commodities are mixed.

Techs - EUR/USD The intense rally has stalled for now by 1.4845 with the market now in the process of attempting to carve out a meaningful top. Gains had accelerated earlier in the month with the market being well supported by the 10-Day SMA. However, the price has since dropped back below the 10-Day and this puts the focus back on the more ciritcal medium-term support in the form of the 50-Day SMA by 1.4365. USD/JPY While the overall structure remains intensely bearish, the recent break below 91.75 leaves daily studies in need of a healthy corrective bounce. Look for the 90.00 area (coincides with 78.6% fib retrace of yearly low-high) to hold for now ahead of some corrective upside over the coming days back towards 93.30. GBP/USD The much talked about neckline of the major h&s topping pattern has now finally been triggered with the result to likely now open a measured move decline towards the 1.5000 area over the coming weeks. However, daily studies do show room for a bounce given the severe decline over the past several days, and we would recommend looking to sell into rallies towards 1.6200-1.6300. Next support by 1.5800. USD/CHF While the market has been nothing but bearish over the past several weeks, our bias is very bullish at current levels with daily studies looking stretched and the price finally testing the 78.6% fib retrace off of the major 2008 low-highs.  Have established a long position on Thursday at 1.0215 and look forward to holding over the coming days in anticipation of a move back into the 1.0500’s.

Flows – Asian sovereign and private client bids in Aussie. Japanese bids on dips in Usd/Jpy. Option expiry in Euro reported at 1.4600.

Trade of the Day – Nzd/Usd: This would be the 11th consecutive up-week for the pair and at this point any additional rallies are seen as unsustainable without a mild correction at a minimum. We have opted to take on a short position today with the market reversing course on Thursday to suggest that a 2009 top could not be in place at 0.7315. An hourly head & shoulders topping formation triggered on Thursday to spark the accelerated selling into the close and we view the latest rebound back above 0.7200 as corrective, with the market now looking to put in a lower top ahead of the next drop below 0.7100. Today’s rally has also exceeded the daily ATR which is somewhat comforting as it suggests that additional gains are limited on Friday. Finally, the rebound back above 0.7200 has stalled by the previous neckline support now turned resistance from the hourly h&s top.

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
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