Canadian Dollar and Japanese Yen Stand Out in Tuesday Trade

MORNING SLICES

FUNDYS

The Canadian Dollar continues to outperform and the only major currency to post gains against the buck on the day. The relative outperformance has been quite interesting with today’s rally occurring well outside of the North American session. Many have attributed the end of year demand to the recent retail sales data and an impressive rebound in oil prices. On the other side of the coin, the Yen has been beaten down, with some lighter volume and illiquid trade helping Usd/Jpy to break back above the much watched daily Ichimoku Cloud which threatens a potential shift in the long-term bearish structure. Overall demand for the Greenback persists into year end and it is not uncommon to see prevailing trends continue to press irrationally in the final days of trade on a given year. The 200-Day SMA in Eur/Usd is fast approaching, with the key technical level also coinciding with psychological barriers at 1.4200.

Relative Performance Versus USD on Tuesday (As of 13:00GMT) –

1)    CAD              +0.43%
2)    EURO            +0.04%
3)    KIWI              -0.24%
4)    STERLING    -0.28%       
5)    SWISSIE       -0.30%
6)    AUSSIE         -0.34%   
7)    YEN               -0.49%

Talk of psychological barriers is not uncommon on Tuesday, with Cable already plummeting through the much watched 1.6000 barrier. The break of this level now exposes medium-term support down by 1.5700. Fundamentally, the big developments in European trade have come out of the UK, which has helped to influence price action. Initially, a Telegraph article talking about the 200 largest UK pension schemes and their impending deficits was seen attracting some negative Sterling attention. Meanwhile data out of the region was mixed with disappointing final Q3 GDP more than offsetting any positive reaction to a stronger current account reading.  Bank of England Posen added an additional strain on the already beleaguered currency after saying announcing that the risk for growth were to the downside over the next two years. Setbacks in the Euro accelerated in the middle of European trade after Moody’s came out and downgraded Greece to A2 from A1, while BOJ Shirakawa was on the wires warning that global financial instability would be damaging to the Japanese banking system. 

 
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 stretched, with the daily RSI dropping below 30 last Thursday. Remarkably, the daily RSI in the major had 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 1.4195. 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 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 92.00, 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. However. It is worth noting that the market has recently broken back above the daily Ichimoku Cloud which could warn of a shift.

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 1.6050, with a break to open a 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 1.6400.

USD/CHF The break back above 1.0340 in the previous 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 has reached 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
 

Asian account buying Cable on dips. German bank and US prime name are Eur/Gbp buyers. UK clearer seen behind latest push in Usd/Jpy. More real money selling in Usd/Cad. Leveraged accounts seen liquidating long Aussie and Kiwi positions.
 

TRADE OF THE DAY
 

No Trade: We are going to try and stay conservative into the end of year and protect our profits. As such we will only look to establish highly compelling trades.

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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