morning slices

Euro Still Considering Close Below 50-Day SMA

The markets continue to show signs of a potential rolling over as currencies slowly lose their firm hold on the buck and begin to recede on the back of some ongoing concerns over the prospects for the global recovery and downbeat comments from the likes of President Obama, Germany’s Wisemen and US Treasury Geithner, who have all now warned of the risks for a double dip recession.

MORNING SLICES

 

FUNDYS

The markets continue to show signs of a potential rolling over as currencies slowly lose their firm hold on the buck and begin to recede on the back of some ongoing concerns over the prospects for the global recovery and downbeat comments from the likes of President Obama, Germany’s Wisemen and US Treasury Geithner, who have all now warned of the risks for a double dip recession. While the OECD has upgraded its assessment on global growth, this development has hardly been offsetting with market participants very much concerned with overinflated commodity prices, as most clearly reflected through gold, which is still only just off of record highs in the mid-1100’s.

Relative Performance Versus USD on Friday (As of 9:15GMT) –

1)    YEN             +0.12%
2)    EURO           -0.19%
3)    CAD              -0.20%
4)    AUSSIE         -0.21%       
5)    SWISSIE      -0.24%
6)    KIWI              -0.37%   
7)    STERLING    -0.57%

We have also been seeing the onset of a new fear from investors who are now contemplating the possibility that the markets will start to falter as the impact of global stimulus measures begin to run out of steam. While the general consensus has been to keep current stimulus measures in place, there has been no real action to inject additional stimulus into local economies, with only some small exceptions. Many analysts have attributed the recent surge in global equity prices to the aggressive stimulus measures which have potentially distorted and overstated the current rebound.

The European session was very quiet on the economic front with the only key release coming from a softer than expected German PPI. In Asia, the BOJ has held steady at 0.10% while also declaring that the economy is picking up. Elsewhere, the Canadian Dollar has been somewhat volatile after BOC Carney reminded the markets that a strong Loonie would act as a hindrance to economic growth and pledged to leave interest rates at 0.25% until June 2010. Fed Plosser was out saying that it is not time to raise rates, while he PBOC’s Zhou was quoted as saying that China is passive on the USD level. PBOC adviser Fan Gang promised that there would be no domestic double-dip recession, while IMF Lipsky said that certain Asian currencies were undervalued, specifically making reference to the Yuan. Lipsky went on to say that he did not see the USD as weak over the medium-term.

Looking ahead, the North American economic calendar is empty and traders are likely to take their cues off of price action in the equity and commodity markets. The currency market has been pretty quiet on the day thus far, with the Yen slightly higher against the buck, while all other major currencies are moderately lower. US equity futures point to an unchanged open, while commodities are mildly bid. The 50-Day SMA (1.4805) in Eur/Usd should be watched closely on Friday, as a close below this level could force a shift in the construct of the market.

GRAPHIC REWIND
 

 

TECHS
 

EUR/USD Despite attempts to rally in recent day, the market has mostly been well offered since failing to rally to fresh 2009 highs in the previous week beyond 1.5065. We now look for the market to carve a double top with a break back below 1.4625 needed to confirm the bearish formation. The 50-Day SMA by 1.4805 is critical, with a close below this medium-term moving average to likely suggest a material shift in the construct of the market. Only back above 1.5065 ultimately negates and gives reason for pause.

USD/JPY Remains locked in an intense downtrend, with the latest setbacks below 89.00 to likely open a direct retest of the recent trend lows by 88.00 over the coming sessions. Below 88.00 will then unlock the critical matched trend lows from late 2008 and early 2009 by 87.15. A lower top is now sought out by 90.60 with only a break back above this level to delay bearish structure.

GBP/USD Despite the latest surge, the market has been well confined to a prominent range that has defined price action for the past several months. As such, any rallies towards 1.7000 should be used as a formidable opportunity to build on short positions, with only a break and close back above 1.7045 to negate outlook and give reason for pause. Next support comes in by 1.6515, with a break to accelerate declines and reaffirm bearish outlook. 

USD/CHF We continue to retain a constructive outlook for the pair despite the underlying bearish trend with medium-term studies overextended and warning of a more meaningful corrective rally. While the latest pullback has matched the recent 2009 lows by 1.0030, this does not rule out the potential for a double bottom formation to be confirmed on an eventual break back above 1.0335. Ultimately, only back under 1.0030 would undermine our constructive outlook and put pressure back on downside.       
 

FLOWS
 

Russian accounts selling Eur/Usd. UK Clearer takes out Gbp/Usd stops below 1.6600. Model bids in Aud/Usd on dips; CTAs starting to sell. Local accounts on the bid in Usd/Cad. French name playing range in Eur/Chf.
 

TRADE OF THE DAY
 

No Trade: Nothing really looking all that attractive today and considering that we already have exposure through our short Eur/Usd and Aud/Usd positions, we are happy to leave things the way they are.
 

PORTFOLIO OVERVIEW
 

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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