morning slices

Commodity Currencies Lower Despite Relative Gold Strength

The European session of trade has been more balanced than what we had seen in Asia, with some market participants looking to buy risk aversion rallies in favor of what has been a very well supported risk appetite trend. Asian equities were lower on the back of some concerns over the stability of the global financial markets, while European equities have been putting in a mixed performance.

MORNING SLICES

 

FUNDYS
 

The European session of trade has been more balanced than what we had seen in Asia, with some market participants looking to buy risk aversion rallies in favor of what has been a very well supported risk appetite trend. Asian equities were lower on the back of some concerns over the stability of the global financial markets, while European equities have been putting in a mixed performance. With the exception of some marginal gains in the Yen, all currencies are tracking lower against the USD on the day, with the commodity bloc getting hit the hardest.

Relative Performance Versus USD on Tuesday (As of 12:00GMT) –

1)    YEN               +0.33%
2)    EURO            -0.11%
3)    SWISSIE      -0.12%
4)    STERLING    -0.47%       
5)    CAD               -0.52%
6)    AUSSIE         -0.69%   
7)    KIWI              -1.01%

On the data front, proven rumors of a strong IFO helped to prop the Euro off of its lows, after the German business climate indicator came in at 93.9 versus the 92.5 forecast. Also out of the Eurozone were some better than expected Eurozone industrial orders. Meanwhile in the UK, mortgage approvals came in on the softer side, while BOE King was on the wires not helping Sterling’s cause after saying that there were signs that the weakness in the currency was helping exports. BOE Posen was also on the wires raising some serious skepticism over the impact of the central bank’s quantitative easing policy. Elsewhere, some data out of the Nordic region was worth mention after Swedish PPI came and Norwegian GDP came in on the soft side. Finally, the Swiss UBS consumption indicator managed to put in its best reading since December 2008 but the result failed to materially impact price action.

Relative weakness in the commodity currencies comes despite a continued demand for gold which has been well bid on shallow dips to trade just off its record highs of $1174. It is worth noting that the daily RSI in gold is now well above 80, which in our opinion, makes selling the commodity highly attractive at current levels. This is perhaps the most compelling trade in the global macro markets at present. On the fundamental front, the IMF has said that it trying to complete its Gold sale, still having more than 200 metric tones to dispose of as soon as possible.

Looking ahead, all eyes will be firmly focused on US GDP (2.9% expected) due at 13:30GMT. US Case Shiller (-9.20% expected) follows at 14:00GMT, with consumer confidence (47.5 expected) the house price index (0.1% expected), and Richmond Fed manufacturing (9 expected) shortly after at 15:00GMT. Later in the day, API inventory data will shed some more light on the commodity markets at 21:30GMT.
 

GRAPHIC REWIND

TECHS
 

EUR/USD The market stubbornly remains well bid on dips to the 50-Day SMA (1.4815) which has supported much of the up-trend in 2009. While we continue to favor the prospects for the formation of a major double top on the daily chart, with a neckline by 1.4625, the market will need to close below the 50-Day SMA to accelerate declines and force a material shift in the construct. Ultimately, only back above 1.5065 negates and gives reason for rethink.

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 The market has been well confined to a prominent range that has defined price action for the past several months. As such, any rallies above 1.6500 should be used as a formidable opportunity to build on short positions, with only a break and close back above 1.7045 to ultimately negate outlook. Next support comes in by 1.6460, with a break to accelerate declines towards more significant support at 1.6250. For now, look for any rallies to be well capped ahead of 1.6700.

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

Asian accounts selling Eur/Usd. UK clearer and US prime name on the offer in Gbp/Usd. Leveraged accounts reducing exposure to long Aussie, Kiwi and Cad positions.
 

TRADE OF THE DAY

No Trade: Nothing really compelling us to increase exposure on Tuesday and we are content to hold onto our Gbp/Usd short from Monday and see how things play out. 

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.

If you wish to discus this topic or any other feel free to visit our Forum page

 

DailyFX provides forex news on the economic reports and political events that influence the currency market.
Learn currency trading with a free practice account and charts from FXCM.

Resources

• free demo account
• forex courses
• open an account
• real time news
• free webinars