Fundys – Perhaps the UK should refrain from putting out economic releases, as the lack of data in the session on Thursday has catapulted the pound to fresh multi-day highs above 1.6200 against the buck, with the single currency also rallying sharply against the other major currencies. It seems as though Sterling is playing a game of catch-up, after being beaten down so heavily in the previous weeks on fears over a misguided and counter-productive monetary policy. Some upbeat comments from MPC member Fisher who says that quantitative easing is now working along with positive M&A flows and better than expected recent data have all been seen driving the Sterling gains. In the Eurozone, the ECB monthly bulletin was released and traders were seen booking some profits on Euro longs after reading that the “rates are appropriate, the recovery is expected to remain uneven and that a low inflationary environment is likely over the medium term.” Meanwhile, Eurozone CPI came out right on expectation, and failed to materially factor into price action. Elsewhere, Swiss ZEW was released and continued to show signs of improvement. Looking ahead, market participants will be focused on the earnings out from Goldman Sachs and Citigroup. On the economic calendar, US CPI (0.2% expected) is due at 12:30GMT, along with initial jobless claims (520k expected), continuing claims (6000k expected) and empire manufacturing (17.50 expected). Canada manufacturing shipments (-1.6% expected) also due at 12:30GMT, should not be forgotten. Finally, the Philadelphia Fed (12 expected) caps things off at 14:00GMT. US equity futures are flat, while gold has started to show some signs of topping.
Techs - EUR/USD (See below). USD/JPY finding some strength on Thursday with the market breaking higher to take out the previous daily high. However, a break above 90.50 will now officially be required to take the pressure off of the downside. GBP/USD Has broken out from a multi-day range trade with the market clearing resistance by 1.6130 and accelerating towards 1.6300 thus far. Next resistance comes in by 1.6390 but we do not see this level being tested over the coming session with intraday studies so overbought. Look for setbacks to now be well supported ahead of 1.6050. USD/CHF Wednesday’s bearish price action and break to fresh 2009 lows seriously dampens recovery hopes and now exposes a direct retest of critical psychological support at parity. We would expect to see a test of this level by the end of the week, with only a break back above 1.0230 to take the pressure off of the downside and potentially force a shift in the intensely bearish structure.
Flows – Stops below 1.4870 in Eur/Usd. US investment bank, custodial, Middle Eastern accounts all bidding Sterling.
Trade of the Day – Eur/Usd: Fresh 2009 highs being made on Thursday with the market ready to test the critical psychological barriers by 1.5000. While there is now the potential for gains to extend beyond 1.5000 towards the 78.6% fib retracement off of the major 2008 high-lows in the 1.5200’s, we like the idea of looking to sell a failure above 1.5000 today in anticipation of a short-term corrective pullback. We look for the market to take out 1.5000 today and run up before eventually stalling out by 1.5040. Our ATR analysis shows a potential high by 1.5040 and as such, we will place a sell order just ahead of this level at 1.5035. STRATEGY: SELL @1.5035 FOR AN OPEN OBJECTIVE; STOP 1.5135. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NEW YORK CLOSE (5PM ET) ON THURSDAY. 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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