morning slices

A chilling GDP result out from the UK this morning has been the top story with the disastrous number (-0.4% versus +0.2% expected), throwing cold water on any optimism towards the economy earlier in the week. The Pound has been absolutely decimated since posting highs earlier in the day just shy of 1.6700, with a massive bout of panic selling opening a collapse back through 1.6400 thus far. 

MORNING SLICES

Fundys – A chilling GDP result out from the UK this morning has been the top story with the disastrous number (-0.4% versus +0.2% expected), throwing cold water on any optimism towards the economy earlier in the week. The Pound has been absolutely decimated since posting highs earlier in the day just shy of 1.6700, with a massive bout of panic selling opening a collapse back through 1.6400 thus far.  The only saving grace for the single currency at this point, is the continued broad based USD weakness, led by a Euro which stubbornly refuses to back off. UK Chancellor Darling comments attempting to mitigate the horrid data, have fallen on deaf ears as market participant confidence is shaken. The better than expected UK mortgage approvals has also done nothing to inspire any Sterling bids. Perhaps the pre-data comments from BoE Posen were a foreshadowing of the discouraging GDP after the central banker said that he was still concerned with the near term economic outlook.  Meanwhile, in the Eurozone, data was mixed with German IFO coming in on the softer side of expectations, while Eurozone PMI showed an improvement and exceeded forecasts. This however did not prevent the Euro from remaining well bid, with even calls from ECB Sramko for additional FX coordination, failing to weigh.

Relative Performance Versus USD on Friday (As of 10:00GMT) –

1)    EURO          +0.07%
2)    AUSSIE        -0.06%
3)    SWISSIE      -0.09%
4)    KIWI            -0.17%
5)    YEN            -0.35%
6)    STERLING   -1.21%

There is no stopping the USD decline with currencies still very well bid against the buck even in the face of some equity declines on Wednesday. It appears as though the FX market is once again leading the way and only it will determine when the appropriate time is for a shift in the construct and direction of the markets. The Euro has easily held above the 1.5000 mark to suggest some more bullish continuation, with the single currency rallying to a fresh yearly high by 1.5060 in Asia. Meaningful highs are rarely made in Asian trade and as such, market participants can be sure to expect a retest and break of this level over the coming hours. More often than not, the pattern has been one in which the US session determines the high and lows.

There has also been a deluge of media attention put towards the demise of the Dollar and although this often warns of a USD rally, the strength of the current trend has been intense enough to even ward off this strong contrarian indicator. Fundamentally, there have been a number of important developments this week that should have supported the greenback, but a barrage of USD supportive comments from officials across the globe, active intervention by several central banks, a Brazilian government that imposed new taxes on Real denominated investment, a Canadian central bank that expressed extreme discomfort with the USD depreciation, and a pullback in equity prices on Wednesday, all have failed to have any impact. USD bears are in full control, with price action giving them no reason to exit their positions. Over the past several weeks, there have no real price reversals that would have USD bears contemplating an exit from their positions. For now, the key level to watch will be 1.4830 in Eur/Usd. Until this level is broken, there can be no talk of a Dollar rally.

In Asia, the calendar was light, with only some Australian import-export data being released. However, while the data is only categorized as second tier, the fact that it came in weaker than expected cannot be a welcome development for an RBA that has recently gone ahead and raised rates. This data comes one day after an Aussie minister was critical of the Aussie rate and the detrimental impact that the currency was having on exports. Nevertheless, the single currency remains very well bid on a strong investor risk appetite and favorable yield differentials.

Looking ahead, the North American calendar is quiet with only US existing home sales (5.35M expected) scheduled for release at 13:00GMT. However, there are a number of officials slated to speak, including; Fed Chair Bernanke at 12:30GMT, Fed Kohn at 15:30GMT, and Treasury Feinberg at 16:00GMT. The Euro is the strongest major currency on the day against the buck, while Sterling is by far the weakest. Other price action of note includes the Yen crosses which have been very well bid. US equity futures point to a mildly higher open, while commodities are also slightly bid.
 
Techs - EUR/USD Rallies have now extended well beyond 1.5000, with the market eyeing next figure support by 1.5100. The overall bullish structure remains firmly intact and any intraday dips are expected to be well supported ahead of 1.4830. Next key topside resistance comes in by 1.5240, the 78.6% fib retracement off of the major 2008 high-lows and we look for this level to be tested over the coming days. Short-term and medium-term technical studies are however looking stretched and any moves beyond 1.5240 are seen limited in favor of a major USD corrective rally. But for now, only back under 1.4830 would negate constructive outlook. Our model is currently running a short position from 1.5010 (stop 1.5110) but the trade has not held up well in the strong trending environment. USD/JPY Our shift to a bullish outlook on Wednesday (based on 10/20-Day SMA positive cross) has paid off, with the market breaking the recent consolidation and accelerating through the 50-Day SMA and Upper Bolinger. Next key resistance comes in at 92.55 (21Sep high) which also coincides with the Ichimoku cloud bottom. Any pullbacks are now expected to be well supported ahead of 90.00.  Weekly studies also confirm and show the formation of a base by 88.00. GBP/USD While the rally of the past few days has been impressive, the overall structure still looks quite toppish and we could finally be seeing the market prepping for some bearish resumption. A closer look at the daily chart is quite revealing, with the market failing by some strong internal resistance between 1.6665 and 1.6745 (former shoulder resistance of major h&s top) on Friday at 1.6690. The subsequent break back below 1.6485 now sets up a bearish outside day to help reaffirm bearish outlook. Next support is now eyed by 1.6240, with only a break back above 1.6690 to negate. USD/CHF Fresh 2009 lows just shy of critical support by parity. However, the overall trend remains intensely bearish and we would expect to see the psychological barrier taken out over the near-term. It is worth noting that daily studies are looking stretched and any additional weakness below 1.0000 should therefore be limited. For now, it is important that the market break back above 1.0355 to relive the downside pressure and potentially open some medium-term corrective strength.   
 
Flows – Stops above 92.10 in Usd/Jpy. Models, CTAs and leveraged accounts all heavy sellers of GBP across the board. Semi-official offers in Aussie. Large global macro and major US bank bidding Eur/Usd; sell-stops below 1.4990. 

Trade of the Day – Eur/Jpy: Any attempts to top out over the past several days have been met with solid buying into the close to instead result in some bullish consolidation now confirmed following Wednesday’s upside break. The key level to watch above comes in by 139.00 which coincides with some recent range highs over the past few months (see 5June/7Aug highs). However, any additional gains should be limited from there, with daily studies showing overbought after the RSI has crossed above 70. Near-term support comes in by 136.25, with a break back below this level to confirm exhausted outlook. We have issued a sell recommendation for Friday by 138.50 in anticipation of yet another topside failure by the range highs that have capped over the past several months. Stop in place at 140.10, with an OPEN objective. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE ON FRIDAY.

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
If you wish to receive Joel's reports in a more timely fashion, e-mail jskruger@fxcm.com and you will be added to the "distribution" list.

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