USD Pauses for Breather Ahead of Weekend

MORNING SLICES

FUNDYS

Price action has been fairly quiet in the Asian and European  sessions with the market seen consolidating Thursday’s aggressive moves and content on waiting for the more active North American trade. With the exception of the Yen, all major currencies are higher thus far on the day against the buck, with the Swissie leading the way. There have been some whipsaw moves in the Yen over the past few hours with early rumors of a coup in Pakistan initially forcing some Yen buying, before the market reversed course after the rumors were dismissed and accelerated gains into Europe.

Relative Performance Versus USD on Friday (As of 9:55GMT) –

1)    SWISSE        +0.60%
2)    EURO            +0.42%
3)    STERLING    +0.38%
4)    CAD              +0.33%       
5)    AUSSIE        +0.17%
6)    KIWI             +0.13%   
7)    YEN               -0.28%

The Yen was less impacted by the BOJ policy decision which yielded an as expected result with the central bank unanimously leaving rates unchanged at 0.10%. There was however a minor adjustment to the accompanying policy statement, with board members sounding a bit stronger on their commitment to prevent deflation. Overall however, the assessment was unchanged with signs that the economy is bottoming and that the pace of bottoming would be slow until mid-2010. Price action in the Swiss Franc was of particular interest with the single currency breaking through critical SNB defended 1.5000 barriers on the Eur/Chf cross. This has been a level that the central bank has been adamant in defending, and there have since been no comments out from the SNB.

On the data front, German PPI came in as expected, while German IFO was stronger. The Eurozone current account deficit narrowed, while the trade balance was still not released at time of publication. UK data was on the whole softer, with the budget deficit deteriorating at a slower pace than expected, but still coming in at its highest levels on record, while UK M4 and the earlier released Gfk consumer confidence disappointed. Nevertheless, these results did not materially factor into price action with the Pound still higher on the day against the buck. Meanwhile the latest BoE Financial Stability Report concluded that the efforts to stabilize the global financial system have helped to significantly improve the stability within the banking system. Swiss KOF was also due but results were not yet released at time of print.  

Looking ahead, the North American calendar is very light with the only material release coming in the form of Canada wholesale sales (0.5% expected) due at 13:30GMT. US equity futures point to a firmer open, while commodities are also bid on similar correlations. We continue to recommend that traders proceed with intense caution as trading desks lighten up in the final weeks of trade in 2009. Markets have a tendency to be very choppy at this time of year and can be dangerous if positions are not closely watched.

GRAPHIC REWIND
 

TECHS
 

EUR/USD While longer-term and medium-term technicals now warn of a major shift in the structure, which favors additional USD gains, shorter-term technicals are officially stretched, with the daily RSI dropping below 30 on Thursday. Remarkably, the daily RSI in the major has not been below 30 since October of 2008. While this development reaffirms the trend shift into the USDs favor, the shorter-term horizon now warns that we could see a bounce over the coming days to allow for some inter-day oversold technical readings to unwind. There is a lot of support from previous daily lows earlier in the year at current levels, but the next key level to watch below comes in by the 200-Day SMA at 1.4180. Nevertheless, the risks from here are for a bounce back towards former support by the 100-Day SMA at 1.4655 before considering a fresh downside extension.

USD/JPY  (See Below)

GBP/USD The market is currently locked in some bearish consolidation and deeper setbacks are favored towards initial support by the 200-Day SMA over the coming days which coincides with critical psychological barriers at 1.6000.  For now, the key level to watch below comes in by 1.6080, with a break to officially signal an end to the consolidation and direct retest on 1.6000. Below 1.6000 will then expose some medium-term support by 1.5700 further down. Any rallies should now be well capped ahead of 1.6500.

USD/CHF The break back above 1.0340 this week has been a critical development which now greatly increases the likelihood of a material shift in the structure in favor of additional USD gains over the coming weeks and months. The market has also now broken back above the 100-Day SMA for the first time since May 2009, while the daily RSI is at its highest levels in over a year, which further strengthens our core bullish outlook. From here, look for any setbacks to now be very well supported ahead of 1.0200, with the market now seen eyeing a test of next resistance by 1.0700 over the coming days.

FLOWS

Real money offers in Eur/Usd in the 1.4400-20 area. Buy-stops cleared in Usd/Jpy above 90.00; fresh exporter, option names and corporate investors on the offer above the figure. Intraday spec accounts playing ranges in Usd/Cad.
 

TRADE OF THE DAY

USD/JPY: Despite the latest bounce, the pair still remains confined to a very strong downtrend and any rallies are seen limited, in favor of a bearish resumption. Look for any additional rallies to stall out ahead of the 100-Day SMA in the 91.00 area, with only a break and close back above 92.35 to delay outlook and give reason for re-think. Key support now comes in by 87.35, and we look for a break back below this level over the coming days to confirm bearish continuation and expose a retest of the recent multi-year lows at 84.80. STRATEGY: SELL @90.70 FOR AN OPEN OBJECTIVE; STOP 91.70. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE FRIDAY. 3X LEVERAGED.

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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