There is some talk that the price action overnight has been attributed to a rumor that the Non-farm payroll number could come in at a staggering -1M. This would indeed explain the moves, with the flight to safety buying through the Yen and Swissy (rather than the USD) given the unnerving rumor. Nevertheless, the rally in the Euro has once again stalled out exactly by the 20-Day SMA. The moving average is important because the market has failed to establish a close above it for the entire 2009.
MORNING SLICES
Fundys - Markets have been moving overnight despite little in the way of any real event risk or developments on the global macro front that could particularly justify the moves. The Euro has surged off of its daily lows by 1.2530 all the way back to 1.2730 before finally finding some offers by the 20-Day SMA, and ahead of the US morning event risk. Meanwhile, Usd/Jpy has been dropping like a stone with price action in the pair arguably making better sense today given the sharp sell-off in equities from the previous day. However the combination of the Euro rallying and some flight to safety buying outside of the USD, has resulted in a much stronger Swissy on the day, which has led all currencies against the greenback. There is some talk that the price action has been attributed to a rumor that the Non-farm payroll number could come in at a staggering -1M. This would indeed make better sense of the overnight price action with the flight to safety buying through the Yen and Swissy (rather than the USD) given the unnerving rumor. Weak US data has generally translated into a stronger USD in the current market environment, but excessively weak data like a potential 1M drop in NFP could have traders looking for an alternative to the USD. In the UK, Chancellor Darling has agreed to a deal that would result in a 70% government ownership of Lloyds bank, while BoE King has said that it is unlikely that rates are seen lower going forward. Hawkish ECB Bini-Smaghi has also been on the wires saying that he recommends the central bank taking a more cautious approach. However, Bini-Smaghi does concede that if lower rates are justified, they should be cut sooner rather than later. In China, any hopes for additional stimulus have all but been quashed after National Bureau of Statistics advisor Li Deshui said that there was no need for a new large scale economic stimulus plan. On the data fron, UK PPI was more or less in-line with expectations, while Swiss CPI was slightly higher. Looking ahead to the North American calendar, key event risk comes in the form of the US unemployment data (-650k and 7.9% expected) due at 13:30GMT. This will likely set the tone for the final session of trade on the week. Later in the day, consumer credit is slated for release at 20:00GMT while on the Fed circuit, Fed Dudley is expected to speak on the financial market turmoil in New York at 16:15GMT.
Techs - EUR/USD has rallied quite impressively on Friday thus far, but the market has run into formidable resistance by the 20-Day SMA at 1.2730 to open the latest minor pullback. The market however remains locked in a strong downtrend and has been unable to close above the 20-Day SMA for the entire 2009. Additionally with the daily ATR already met, we see the risks for some heavy selling into the rally. Only a close above the 20-Day will ultimately delay the downtrend. Key levels to watch over the coming session come in by 1.2730 and 1.2530. USD/JPY is finally starting to roll over with the market showing some good follow through from Thursday’s bearish outside day. Daily studies show plenty of room for additional weakness, and a retest by the previous neckline resistance turned support at 94.60 could be seen over the coming days. Key levels to watch over the coming session come in by 97.75 and 96.00. GBP/USD price action has been constructive thus far on Friday with the market trading just shy of the 20-Day SMA at 1.4320 ahead of the latest minor pullback. Nevertheless, it is hard to establish a clear directional bias, and more clarity will be given on a break above 1.4320 or back below 1.4100. USD/CHF has pulled back sharply to suffer the most on the day, with the market reaching 1.1485 thus far. However, even in the face of the sharp reversal day, we would not recommend establishing short positions, with the major still confined to a very choppy multi-day range trade. Two Friday’s ago (20Feb) we saw an extremely bearish reversal day which took out the previous 11 day range, but ultimately, this led to nothing with the market merely bouncing back into the range thereafter. As such, our favored strategy is to buy on dips below 1.1500.
Flows - Greenback sold on rumor of 1 million NFP print. Euro bid up by various Eastern European, Russian names and Asian central bank interest; 1.2685 expiry today. Talk of 0.6280-0.6560 double-no-touch in Aussie held by a China name. Model funds noted buyers of Cable.
Trade of the Day - Aud/Chf: The cross is in the process of testing key rising trend-line support off of the late December 0.7195 lows, and with the market continuing to chop around while also showing signs of longer-term basing, we like the idea of attempting to establish a long position into the current dip. The daily “Average True Range” projects a potential low just under the trend-line at 0.7340, while the lower Bollinger band comes in by 0.7325. As such, we will look to buy on a dip today to the lower Bollinger in anticipation of a significant rebound. Strategy: BUY @0.7325 FOR A 0.7650 OBJECTIVE, STOP @0.7190. Stops to be trailed to cost on a break back above 0.7400. If trade triggers and 0.7400 not broken, position to be closed out at NY close (5pm EST) on Friday. Recommendation to be removed if not triggered by NY close on Friday.
Fundamental Catalyst - As we head into the final session, the strongest performer on the day has been the Swissy (+1.25%) while the weakest has been Aussie (-0.16%). Price action has been quite choppy overnight and considering the moves have really been driven off of no significant fundamental developments, we feel we could be at risk for some position adjusting back into the US. There is some significant event risk ahead in the form of the monthly US unemployment numbers, and considering the recent moves, we like the idea of fading the strongest currency and buying the weakest purely as a short-term relative value play.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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Monday-Friday (between 5:30am-6:30am EST)
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“Indicator of the Day” – A Feature Report that Highlights our Most Significant Technical Indicator of the Day.
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