Dollar Recovery Tested in Wednesday Trade

MORNING SLICES

FUNDYS
 

The USD rally of the past few days has been impressive and we are starting to see some fresh sell interest from accounts still looking to take advantage of the overriding trend which has been net USD bearish. On the day, sentiment has picked back up, with all major currencies tracking higher against the buck, led by the higher yielding antipodeans. Although concerns over the recent deterioration in Dubai and Greece still resonate with investors, it seems as though these developments have not been enough to full shake the confidence of traders looking for higher yielding assets.

Relative Performance Versus USD on Wednesday (As of 11:00GMT) –

1)    KIWI             +0.81%
2)    AUSSIE        +0.72%
3)    YEN               +0.55%
4)    EURO            +0.42%       
5)    SWISSIE      +0.38%
6)    CAD               +0.36%   
7)    STERLING    +0.25%

On the data front, German CPI managed to come in slightly higher, while the UK trade balance widened more than expected and Swedish industrial production was a let down. In Australia, it was somewhat strange to see all three secondary releases come in softer, with trade, home loans, and consumer confidence all disappointing.

Looking ahead, US mortgage applications are due at 12:00GMT, followed by the UK pre-Budget report at 12:30GMT. US wholesale inventories (-0.5% expected) are then due at 15:00GMT, with DOE data capping things off later in the day. US equities point to a firmer open, while commodities are also bid, led by oil prices. 

GRAPHIC REWIND
 

TECHS
 

EUR/USD The market continues to extend declines with an acceleration seen since the close below the critical 50-Day SMA. Setbacks have now stalled just shy of next key support by 1.4625, but we look for this level to be taken out over the very near-term. A break below 1.4625 will then expose the next downside extension towards 1.4480 further down. It is however worth noting that the market has been supported by a longer trend-line from June which comes in just under 1.4700. Nevertheless, any rallies should be well capped ahead of 1.4875, with daily studies still showing room for additional weakness from here.

USD/JPY The corrective rally out from the recent 84.80 multi-year lows has stalled out, and a fresh lower top is now sought out below 92.35, by 90.80, ahead of an eventual retest and break below 84.80. The overriding trend is still intensely bearish and market participants should look to take advantage of any overdone rallies to build on short positions. Only back above 92.35 would give reason for concern and delay structure.  

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. Tuesday’s break below 1.6250 is significant and should now open a fresh downside extension that exposes a retest on 1.5700 over the coming days. Any rallies are expected to be well capped ahead of 1.6500. Daily studies are approaching oversold but there is still room for the current decline to continue. 

USD/CHF Our core bullish bias is still intact, with the market unable to establish itself on a two-day close basis below parity, ahead of the latest sharp topside reversal. This puts our major bottoming scenario back in play, with a closer look at the weekly chart more clearly defining the reversal formation. The neckline for the base comes by 1.0340, and a break above this level will confirm bias and accelerate gains back into the 1.0700's. Ultimately, only a close back under 0.9915 would negate outlook and give reason for pause. For now, look for any intraday setbacks to be well supported in the 1.0100 area.

FLOWS

UK Clearer selling Usd/Jpy. Asian reserve manager, Macro fund, US bank, custodial, UK clearer and Canadian account all bidding Eur/Usd. UK clearer on the offer in Gbp/Jpy. Middle East and Russian names on the bid in Gbp/Usd.

TRADE OF THE DAY

Gbp/Aud: (Sticking with Tuesday’s trade but lowering entry by 5 points) In the process of a multi-day consolidation since rallying out from the recent multi-year lows set by 1.7330 in October. Any dips have been very well supported in the 1.7800’s of late, and we would expect to see this area continue to support, with a medium-term higher low now sought out by 1.7695 ahead of the next major upside extension beyond 1.8370.  Longer-term studies certainly confirm our constructive outlook, with the market looking very stretched and due for additional strength over the coming weeks and months. We contend that a major bottom is now in the process of carving out and do not expect to see a retest of 1.7330 anytime soon. STRATEGY: BUY @1.7845 FOR AN OPEN OBJECTIVE; STOP 1.7645. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON WEDNESDAY. 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.

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