morning slices

Greenback Beaten Down But Fresh Eur/Usd Short Taken

Friday’s impressive close in US equities, despite the surge in the unemployment rate, has done a good job setting the tone in early trade on Monday thus far, with the USD getting hit hard as investors once again trade back into riskier and higher yielding currencies.

MORNING SLICES

Fundys – Friday’s impressive close in US equities, despite the surge in the unemployment rate, has done a good job setting the tone in early trade on Monday thus far, with the USD getting hit hard as investors once again trade back into riskier and higher yielding currencies. Also adding fuel to the fire has been a surge in gold prices to yet another record high towards $1110, while oil prices have also followed suit on similar themes and talk of hurricane threats. Meanwhile, an upgrade to China’s outlook from Moodys and an IMF report stating that the Yuan is grossly undervalued, while the USD and Euro are on the strong side, has not helped the Greenback’s cause.

Relative Performance Versus USD on Monday (As of 11:20GMT) –

1)    KIWI              +1.82%
2)    CAD               +1.23%
3)    STERLING    +1.18%
4)    AUSSIE         +0.99%       
5)    EURO            +0.96%
6)    SWISSIE      +0.96%   
7)    YEN               +0.02%

It is no surprise then that the commodity currencies are amongst the outperformers on the day, with Aussie and Kiwi rallying sharply on these themes. Aussie has found some additional bids on the back of the stronger overnight housing data, while Kiwi is propped to the top spot after NZ dairy giant Fonterra announced that it had raised its 2009/10 payout by 19%. Data released in the Eurozone was impressive on the whole, with Eurozone Sentix coming in much better than expected, while some German data was also encouraging. Although there were no releases in the UK, some heavy sell stop hunting in Eur/Gbp and M&A related activity have helped to bolster the pound on Monday.

Looking ahead, the US calendar is empty, with the only release in the North American session coming from Canada housing starts (159.3k expected) due at 13:15GMT. As such, look for the markets to continue to cue off of the broader global macro theme of risk appetite. The performance in US equities on Monday should be a good secondary reference to currencies. For now, US equity futures point to a firmer open, while commodities are also well bid led by record high gold prices.  

Graphic Rewind -

 
Techs - EUR/USD (See below). USD/JPY Difficult to determine whether we are undergoing some bearish consolidation within the broader underlying downtrend, or are in the process of carving out some form of a short-term base. We will stick to the latter for now with the market looking like it could be carving out an inverse head & shoulders base above 88.00. A break back above 91.25 will help to reaffirm the prospects for the right shoulder, with a push back above the neckline by 92.50 ultimately required to confirm formation. A break above 92.50 should however open a measured move upside extension towards 96.50 once broken. Back under 89.20 however will negate and shift focus back on downside. GBP/USD Has just now taken out the key 78.6% fib retracement off of the major 1.7040-1.5705 move in the 1.6750 area, with the market stalling by 1.6800 thus far. However, despite the latest surge, we continue to hold onto a bearish bias, with the broader structure still looking quite toppish and confined to a very well defined range that has been met with solid internal range resistance at current levels. We look for the market to close back below 1.6750 on Monday to reaffirm bearish outlook, with only a close above this level giving reason for concern. USD/CHF The rally out from the 1.0030, 2009 lows has finally stalled out by 1.0335 to open the latest round of setbacks. However, despite the pullback, we retain our constructive outlook and expect to see the market very well supported on a close basis above the 78.6% fib retracement off of the 1.0030-1.0335 move which comes in by 1.0100. Ultimately, we look for this are to prop additional setbacks ahead of some fresh upside to be confirmed on a break back above 1.0335 over the coming days. Only a close back below 1.0100 would negate and give reason for concern.     
 
Flows – Model funds selling Eur/Gbp. Asian reserve manager, US and Canada accounts buying Eur/Usd. M&A related flows propping Sterling. Global macro and system fund related demand for Aussie and Kiwi. Leveraged accounts buying Yen crosses. 

Trade of the Day – Eur/Usd: Price action has really been testing bears with the market racing through some recent consolidation highs by 1.4915 to trade into the lower 1.5000's thus far. While a retest of the 1.5060 2009 highs cannot be ruled out at this point, we still hold onto our bearish view and look for the latest surge to now stall out on a close basis below 1.4970. The 1.4970 level represents the 78.6% fib retracement off of the 1.5060-1.4625 move and could very well stall the current rally in favor of a bearish resumption. Ultimately, only a clear break back above 1.5060 will negate outlook and force re-think. POSITION: SHORT @1.4970 FOR AN OPEN OBJECTIVE; STOP 1.5130. POSITION SIZE IS 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
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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