morning slices

Currencies have been very well bid in Europe with the USD losing ground across the board, with only the Yen finding some weakness against the buck. The primary driver of price action has come from a resurgence in risk appetite as reflected by rallying global equities and well bid commodities.

MORNING SLICES

FUNDYS
 

Currencies have been very well bid in Europe with the USD losing ground across the board, with only the Yen finding some weakness against the buck. The primary driver of price action has come from a resurgence in risk appetite as reflected by rallying global equities and well bid commodities. Gold has ascended to fresh record highs just shy of $1200, and the fear of a Dubai crisis appears to be quickly dying down as investors realize that the impact is not as far reaching or damaging to the global economy as had been initially perceived. The relative weakness in the Yen comes on the back of an emergency BOJ meeting in which the central bank has announced that it will pump the economy with additional liquidity in an effort to help avoid a deflationary market environment. Also seen weighing on the Yen has been talk which warns that officials are now prepared to take action in light of the recent rapid Yen appreciation. Nevertheless, the Yen has found some fresh bids on dips, with Usd/Jpy pulling back off of its daily high, after the new measures announced by the BOJ fell short of expectations that a more formal quantitative easing policy would be adopted.

Relative Performance Versus USD on Tuesday (As of 10:50GMT) –

1)    KIWI              +1.70%
2)    CAD               +1.07%
3)    AUSSIE          +0.81%
4)    STERLING    +0.80%       
5)    SWISSE        +0.52%
6)    EURO             +0.48%   
7)    YEN                 -0.43%

It is no surprise that the commodity bloc currencies are the strongest on the day, with Kiwi leading the way. Interestingly, the Australian Dollar is the weakest of the three major commodity currencies, with the relative weakness stemming from a less hawkish than expected RBA statement, after the central bank raised rates by another 25bps to 3.75% as expected.

On the data front, it was certainly a busy session of economic releases. Swiss GDP was slightly weaker, while German retail sales were stronger. UK Nationwide house prices were better, while Eurozone unemployment was slightly weaker after a revision. Finally, Eurozone PMI was slightly better, while UK PMI came in noticeably weaker than forecast. However, as has been the case of late, no specific data release had any material impact on price action, with the markets still trading off of broader fundamental themes and developments.

Looking ahead, US ISM manufacturing (55 expected), construction spending (-0.5% expected)and pending home sales (-1.0% expected) are due at 15:00GMT. On the official circuit, Fed Plosser is scheduled to speak on the economic outlook in Rochester, New York at 17:00GMT. US equity futures are pointing to a solid open, while commodities are also well bid.

GRAPHIC REWIND
 

TECHS
 

EUR/USD (See Below).

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 89.00 area (20-Day SMA) before considering the possibility for another round of weakness below the recent 84.80 trend low.

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 1.6745, with only a break back above the psychological barrier to delay outlook.

USD/CHF Our core bullish bias is still intact, with the market unable to establish itself below parity and subsequently sharply reversing back above 1.0100. This puts our major double bottom scenario back in play, with a closer look at the weekly chart more clearly defining the reversal formation. The neckline for the pattern doesn't come in until 1.0340, and a break above this level will be required to confirm and accelerate gains back into the 1.0700's. Ultimately, only back under 0.9915 would negate outlook and give reason for pause.

FLOWS

Option expiry at 0.9240 in Aud/Usd. Model accounts and Swiss Bank buying Gbp/Usd. Solid bids in Usd/Chf below parity. Semi-official offers in Eur/Usd.
 

TRADE(s) OF THE DAY

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 1.4850 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. As such, any rallies above 1.5100 should be used as an opportunity to establish short positions. Only back above 1.5145 would negate. STRATEGY: SELL @1.5110 FOR AN OPEN OBJECTIVE; STOP 1.5260. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON TUESDAY. 3X LEVERAGE.

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  a close back under 1.0400 would negate outlook. POSITION: LONG @1.0465 FOR AN OPEN OBJECTIVE; STOP 1.0345.

 

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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