MIDDAY SNAPSHOT & ANALYSIS OF SELECTED RATES
Price action in the morning session has been driven off of the much weaker than expected NFP result which came in a whopping 100k greater than forecast at 467k. While the unemployment rate was better than expected, the 9.5% print was still weaker than the previous 9.4% reading. This helped to fuel massive flight to safety buying, also accelerated on position squaring ahead of the shortened US holiday week. The as expected ECB decision to leave rates on hold at 1.00%, failed to materially factor into price action. Although, some downbeat Trichet comments on the Eurozone economic outlook for the remainder of 2009, along with a statement in the Q&A that the ECB would not rule out the potential for lower rates, was seen acting as an additional strain on the Euro. The earlier decision by the Riksbank to cut rates by 25bps to 0.25% was a shocker and caught the markets off guard after it had been widely anticipated that the Swedish central bank would leave rates on hold. The impact of the decision filtered into the global macro scene, with many investors fearing the decision warned of a prolonged economic recovery. US equities have been hit hard today (all major indices are down +2%) on the back of the massive reduction in risk appetite, while commodities are also tracking well lower. Oil is down well over 3% on the day and looks like it could be carving out a major double top. The Yen is the strongest currency on the day, while the commodity currencies are the weakest, led by Kiwi declines.
ANALYSIS OF SELECTED RATES
Usd/Zar: While we are not inclined to recommend any formal position in the pair, we are very attracted to the idea of establishing long positions at current levels, with a potential upside that looks extremely compelling. The market has been in a virtual free fall since early 2009, with the Rand gaining well over 20% against the USD to standout as the best performing currency on the year. However, the USD has now declined back to former longer-term resistance now turned support from August 2007, and with daily and weekly studies looking stretched, we see good reason for some fresh USD buying and Rand profit taking at current levels. Shorter-term price action shows an end to a sequence of 56 consecutive negative daily closes of lower highs and lower lows after the market failed to break lower on Wednesday and has just taken out Wednesday’s highs today. The Rand has also been highly correlated with price action in equities (0.64) and given our view that equities are likely to start to pull back, we see good reason for the Rand to sell-off as well. It seems as though officials have become less optimistic with the recovery prospects for the global economy, instead favoring more of a double dip recovery over a “V” shaped bottom, and any deterioration in investor sentiment resulting from this will ultimately weigh on the emerging market currency. Look for the market to start to carve out a bottom, with a minimum upside extension now seen back towards 8.28, above which should formally shift the overall structure and open a fresh wave of medium-term buying. Any dips back towards the recent 2009 lows at 7.66 and psychological support at 7.50 should be used as an opportunity to build on long positions.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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Joel Kruger publishes 6 daily pieces:
“Tech Talk” – A Daily Video Highlighting Technical Developments in the Overnight Session of Trade.
Monday-Friday (between 5:30am-6:30am EST)
“Morning Slices” – Morning Overview using Fundamental, Technical, Flow, and Quantitative Analysis (Includes “Trade of the Day”).
Monday-Friday (between 6:30am-7:30am EST)
“Indicator of the Day” – A Feature Report that Highlights our Most Significant Technical Indicator of the Day.
Monday-Friday (between 8:00am-9:00am EST)
“Midday Snapshot” – A Midday Fundamental Update, along with Technical Analysis of Selected Rates.
Monday-Friday (between 10:30am-11:30am EST)
“Scandi Daily” – A Specialized Daily Fundamental and Technical Overview of the Nordic Currencies. (This report is only distributed through email. Please contact Nordic@fxcm.com if you would like to be added to distribution.)
Monday-Friday (between 11:30am-12:30pm EST)
“Daily Classical” – A Daily Technical Overview of the Major Currencies.
Monday-Friday (published between 2:00pm-3:00pm EST)
