USD Rally Gaining Momentum (Morning Slices)

Published October 1st, 2009 - 09:35 GMT


Fundys – Surprisingly, with the exception of Sterling, all major currencies are tracking lower against the buck heading into the US session of trade and on the first day of the Q4. The Pound has managed to recover nicely, finding strong demand on the crosses, despite the weaker PMI data. An upbeat BOE credit report, along with and upgrade on the growth outlook for the UK economy from the IMF have been sourced as the primary drivers that have easily offset the discouraging PMI. The Euro on the other hand has been under pressure for most of the session, with a break of stops below 1.4600 triggered on currency comments from Eurogroup Almunia who said that the Euro appreciation would be discussed at the upcoming G7. Also weighing on the Euro were the higher Eurozone unemployment rate, and weaker German retail sales. ECB President Trichet was out saying that a fiscal stimulus exit would be needed by 2011 at the latest. Looking ahead, the calendar is full with US Challenger job cuts at 11:30GMT, followed by personal income (0.1% expected), personal spending (1.1% expected) and personal consumption (-0.6% expected) at 12:30GMT. Also due up at 12:30GMT are initial jobless claims (535k expected) and continuing claims (6170k expected). Later at 14:00GMT, ISM manufacturing (54 expected), pending home sales, and construction spending (-0.1% expected) are due. On the official circuit, Fed Lockhart is slated to speak at 21:30GMT on the economy. US equity futures point to a lower open by some 0.50%, while commodities are also offered.

Techs - EUR/USD The weakness on Thursday could finally be setting us up for the desired close below the 20-day SMA (1.4610) which has propped for a month’s time. Look for a fresh lower top now by 1.4680 to be confirmed on a break below 1.4525 over the coming sessions. Below 1.4525 should accelerate declines and open the next drop back towards our initial objective in the 1.4400-65 area. Only back above 1.4680 delays and gives reason for concern. USD/JPY As expected, the pullback on Wednesday stalled out just ahead of our 89.30 level and the market has since bounced back above 90.00. With daily studies closer to oversold territory and recently turning up, we continue to favor the prospect for additional strength over the coming days back towards the 92.00 area before considering the possibility of a bearish resumption. Right now, the price has been confined to inside day trade with a break above 90.40 required to get things going.  GBP/USD While the recent H&S top that triggered in the previous week projects deeper setbacks over the medium-term to a measured move objective at 1.5000, we would caution bears with daily studies in the process of bouncing from oversold and more likely inclined to bounce some more ahead of the next downside extension. Nevertheless, a lower top is now sought out by Wednesday’s 1.6130 high to be confirmed on a break below 1.5770. USD/CHF Looks like it could be in the process of carving out a base after dropping to a fresh 2009 low by 1.0185 in the previous week. The market has since broken back above 1.0400 and now has its sights set on establishing a close above the 20-Day SMA at 1.0365. A close above 1.0365 will be encouraging for bulls and open an acceleration of gains back above 1.0500 over the coming sessions.

Flows – UK Clearer selling Eur/Gbp. US prime name buying Cable. Spec accounts bidding Eur/Chf. Buy-side and real money interest in Usd/Cad.  Reserve manager and custodial account offering Eur/Usd.

Trade of the Day – Gbp/Aud: Starting to show signs of a potential base and although we have been burned with this one already, we simply can not ignore the severely overextended nature of the market. Both the daily and weekly studies are oversold and are warning of a major upside reversal. Today’s constructive price action after establishing fresh multi-year lows below 1.8100 could now be the necessary catalyst for said correction. The recovery rally off of the lows triggered an inverse head & shoulders formation that now projects fresh upside back into the 1.8300’s over the very near-term. As such, we will look to buy a pullback to the neckline area, in anticipation of the formation of a major base. STRATEGY: BUY @1.8130 FOR AN OPEN OBJECTIVE; STOP 1.7930. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM NY) ON THURSDAY. 

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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