MORNING SLICES
Fundys – The wave of broad based USD selling accelerates into the new week, with most of the major currencies surging to fresh 2009 highs. USD selling has been so aggressive that the markets are even selling the single currency against the Yen, which once again eyes key support by 93.55. The markets continue to be driven by surging risk appetite, rallying global equity prices and unrelenting demand for commodities. Market participants have grown increasingly confident in the recovery prospects for the global economy with the overnight PMI data also helping to reaffirm after both Eurozone and UK PMI came in better than expected, while China PMI was also better after showing a reading above 50 for the third consecutive month. Sterling has been one of the outperformers today, having the added benefit of a better than expected Hometrack data result. However, the higher yielding antipodeans have been the strongest performing currencies on the attractive yield differentials. The USD deprecation has persisted despite recent calls from Treasury Secretary Geithner on his trip to China for a strong USD policy. There is however some sense of tension with the latest currency moves after Canada FinMin Flaherty came out saying that the Canadian Dollar appreciation has been “relatively rapid” and the administration is watching with “concern.”Looking ahead, Canada GDP (-0.3% expected), raw materials prices (6.5% expected) and industrial product prices (0.10% expected) are due at 12:30GMT, along with US personal income (-0.2% expected), personal spending (-0.2% expected) and personal consumption (0.4% expected). US ISM manufacturing (42.3 expected) and construction spending (-1.6% expected) follow at 14:00GMT. US equity futures point to triple digit gains, while oil trades to a fresh 2009 high by $68 and gold inches closer to the critical $1000 mark.
Techs - EUR/USD continues to surge to fresh 2009 highs with the market now trading above 1.4200 to the 78.6% fib retracement off of the 1.4720-1.2455 major move. Daily studies are overbought and the risks from here are for a pullback. Key levels to watch over the coming session come in by 1.4250 and 1.4100. USD/JPY setbacks extend into Monday after taking out Friday’s lows by 95.00. A fresh drop towards 93.55 is now favored over the coming days with only a break back above 95.50 to delay. GBP/USD (See below). USD/CHF declines have stalled just shy of the 1.0610 2009 lows and we would expect to see this levels tested over the coming session. However, daily studies are now stretched and the risks from here are for an upside reversal over the coming days. Key levels to watch over the coming session come in by 1.0700 and 1.0600 respectively.
Flows – Stops cited below 94.00 in Usd/Jpy. UK clearer offers in Usd/Cad; real money demand. Talk of fix London fix related offers in Eur/Usd. Model funds buyers of Cable.
Trade of the Day – Usd/Cad: Once the currency pair had broken down through the multi-week choppy consolidation back in early May, there was very little in the way to support any pullbacks with the next key support not seen until the 1.0800 area which is currently being tested. Throughout the current pullback, we have consistently been looking to buy USDs with very little success, but also very little pain as we have been quick to exit any positions that do not show any form of bottoming. However, at current levels, the market should indeed be very well supported and we would now confidently expect to see a major upside reversal over the coming days at a minimum. From August through September of 2008 the market had been consolidating gains, with the 1.0800 area at that time acting as a formidable resistance point. We therefore see this former resistance now acting as an excellent support zone ahead of a reversal back towards the 1.1100-1.1300 area over the coming days. We have left our objective open and will be looking for an RSI move back towards 30 (currently 23) over the coming days. Position: LONG @1.0807 FOR AN OPEN OBJECTIVE, STOP @1.0590.
Trade of the Day – Gbp/Usd: Much like Usd/Cad, we have been looking for opportunities to be short of this pair as well, and have established a fresh short on Monday after gains showed signs of stalling above 1.6400. Shorter-term, hourly studies are overbought and the daily ATR (Average True Range) has already been well exceeded on the day, to make the counter-trend short position very attractive on an intraday basis. Longer-term, the market has now retraced to the 38.2% fib retrace off of the major multi-year high-lows and we would expect to see some form of capitulation at current levels in light of the major retracement level. Finally, the daily RSI has broken above the 80 level which is now severely overbought and warning of a much needed and healthy corrective pullback. We have left our objective open and will be looking for an RSI move back towards 70 (currently 81) over the coming days. Position: SHORT @1.6407 FOR AN OPEN OBJECTIVE, STOP @1.6687.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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