Currencies Back on the Bid in Choppy Month End Trade

MORNING SLICES

FUNDYS

Some second tier data releases in Europe have left the markets to trade off of broader global macro developments, with the USD back under pressure on Monday, as fears over contagion in Dubai begin to recede. Abu Dhabi has come to the rescue and will apparently provide the necessary aid to keep things afloat in the region. Meanwhile, the Yen continues to receive a lot of attention, with the single currency appreciation inspiring talk from the local government of a plan to take action in order to deal with the recent Yen appreciation. Some mid-European price action got traders talking after Usd/Jpy jumped some 50 points in a matter of minutes to raise questions of potential central bank intervention. However, many others attributed the price action to the news that strategy minister Kan confirmed that the government had agreed on measures to stop the Yen rise.

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

1)    AUSSIE         +0.77%
2)    CAD               +0.52%
3)    KIWI              +0.51%
4)    EURO            +0.34%       
5)    SWISSE        +0.33%
6)    STERLING    +0.19%   
7)    YEN               +0.18%

Bank of England mortgage approvals fell short of expectation and Eurozone flash CPI was firmer, but neither release proved to materially  factor into price action. Elsewhere in the UK, the Engineering Employers Federation warned that insolvencies could rise sharply over the next 2 months unless sufficient financing became available. Many market participants are now looking ahead to the upcoming RBA meeting (25bps to 3.75% expected) with the rate decision of particular interest in light of the recent pullback in global equities and signs that a sustained global recovery will be hard to come by. Recent hawkish comments from RBA McKibbin have however helped to bolster the single currency to the top performing spot on the day, after saying that rates must be raised quickly in order to avoid fuelling asset bubbles.

Looking ahead, Canada GDP (0.4% expected) is due at 13:30GMT, followed by Chicago PMI (53.3 expected) at 14:45GMT. Dallas Fed manufacturing (0.0% expected) then caps things off at 15:30GMT. All currencies are higher against the buck on the day. US equity futures point to a lower open, while commodities are mixed with oil higher and gold lower.
 

GRAPHIC REWIND
 

TECHS
 

EUR/USD The break above 1.5065 to fresh 2009 highs by 1.5145 a few days back, appears to have been a false break, with the market sharply reversing course and trading back below the 50-Day SMA. The 50-Day SMA, which comes in by 1.4845 is the critical level to watch, with the medium-term moving average supporting a majority of the up-trend in 2009 on a close basis. As such, a close below this level would be viewed as a significant development and would suggest a material shift in the construct of the market. Given the latest volatility and whipsaw price action, we would recommend deferring to the weekly chart, which still shows the formation of a potential double top. The neckline comes in by 1.4625 and a break below would open a measured move decline towards the 1.4100's. Only back above 1.5145 would negate.

USD/JPY The market continues to extend declines to fresh multi-year lows since breaking below the recent 2008/2009 matched trend lows at 87.15. There is no real support now until 79.75 which represents the 1995 historic lows and a retest of this level can not be ruled out at this point with the overriding trend so intensely bearish. However, daily studies which are severely oversold can also not be ignored and the shorter-term risks seems to favor some corrective upside back towards the 88.30-89.25 area (10/20-Day SMAs) before considering the possibility for another round of weakness below Friday's 84.80 lows. Friday’s bullish doji close confirms need for short-term corrective rally.

GBP/USD Our outlook for the pair remains well intact with the market adhering to the multi-month consolidation after failing ahead of 1.7000 and rolling back over into the well defined range. Look for a sustained break below 1.6250 to now open the door for some deeper setbacks over the coming weeks towards next key support by 1.5705. In the interim, below 1.6250 will expose initial previous resistance turned support by 1.6130. Rallies should now be well capped ahead of 1.6500, with only a break back above the psychological barrier to delay outlook.

USD/CHF Our outlook for the pair remains well intact with the market adhering to the multi-month consolidation after failing ahead of 1.7000 and rolling back over into the well defined range. Look for a sustained break below 1.6250 to now open the door for some deeper setbacks over the coming weeks towards next key support by 1.5705. In the interim, below 1.6250 will expose initial previous resistance turned support by 1.6130. Rallies should now be well capped ahead of 1.6745, with only a break back above the psychological barrier to delay outlook.

FLOWS

Swiss bank on the bid in Eur/Chf below 1.5050. Retail exported and prop trader offers in Usd/Jpy. UK clearer and US prime name demand for Eur/Gbp; German bank on the offer. Option expiries at 1.5100 in Eur/Usd. Heavy month end related flows across the board.
 

TRADE OF THE DAY

Usd/Cad: We continue to retain a strong bullish bias for the pair with the market in the process of consolidating ahead of the next major upside extension beyond 1.0870. The market has been putting in a series of gradual lower tops since August, but we contend that this pattern is on the verge of expiration, with a break above 1.0870 to confirm. Setbacks have been very well supported in the mid-1.0400's and we look for a break back above 1.0620 to accelerate gains to 1.0750. Above 1.0750 then exposes next meaningful resistance by 1.0870 further up. Ultimately, only back under 1.0400 would negate outlook. STRATEGY: BUY @1.0485 FOR AN OPEN OBJECTIVE; STOP 1.0345. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON MONDAY. 3X LEVERAGE.

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