FX Markets Quiet Ahead of Holiday

MORNING SLICES

FUNDYS

All is very quiet ahead of the holidays and markets have barely moved in Asian and European trade. The Swiss Franc has slightly outperformed, while Aussie lags and the New Zealand Dollar is unched despite a weaker than expected Q3 GDP print. Meanwhile, the Canadian Dollar continues to mount impressive gains despite lower oil prices, with many market participants growing increasingly optimistic on the outlook for the local economy.

Relative Performance Versus USD on Wednesday (As of 10:00GMT) –

1)    SWISSE      +0.11%
2)    CAD             +0.09%
3)    KIWI              -0.01%
4)    YEN               -0.01%       
5)    EURO            -0.02%
6)    STERLING    -0.11%   
7)    AUSSIE        -0.13%

In the UK, the BOE Minutes were released and produced no surprises after the central bank unanimously agreed on the unchanged rate verdict and maintenance of QE at GBP200B. While the board members did note the positive economic developments, they also cited recent troubles out of Dubai and Greece. Sterling did however remain offered on the session with some citing Fitch warnings to Britain’s credit ratings as the source for the relative weakness.  Also seen weighing were downbeat comments from Ex-BoE member Goodhart who said that policymakers have neglected the danger signals of monetary data.

 In China, the central bank said it would maintain an appropriately loose monetary policy but would aim to make the policy mare targeted and flexible. Another theme that has been generating some attention has been the latest breakdown in the inverse correlation between the USD and equities with both now positively aligning and both extending gains at the same time.

Looking ahead, US mortgage approvals kick things off at 12:00GMT followed by Canada GDP (0.3% expected) and US personal income (0.5% expected), spending (0.7% expected) and consumption (1.6% expected) data at 13:30GMT. University of Michigan confidence (74.0 expected) and new home sales (438k expected) are then due at 15:00GMT, with some DOE data capping things off at 15:30GMT. US equity futures are slightly firmer and commodities are mixed. 

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 stretched, with the daily RSI dropping well below 30. 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 10-Day SMA at 1.4455 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 90.15, and we look for a break back below this level to trigger resumption of downtrend. It is however worth noting that the market has broken back above the daily Ichimoku to potentially warn of a shift in the structure. But moves above the Ichimoku in recent attempts have proved fleeting.   

GBP/USD The market has now easily cleared support by the 200-Day SMA and psychological barriers by 1.6000 to open the next downside extension towards key medium-term support at 1.5700. Daily studies are however looking a little stretched and we would recommend looking to sell into rallies rather than selling on breaks. Look for any rallies to now be well capped ahead of 1.6300, where a lower top is sought out ahead of the retest on 1.5700.

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

Real money accounts continue to buy Canadian Dollars. Currencies broadly offered into year end.

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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