Currency Rallies Not Expected to Last; Profit Booked on Eur/Cad Long

MORNING SLICES

FUNDYS

It is difficult to assign a solid justification to the latest bout of USD selling and although key resistance in Eur/Usd has been cleared at 1.4485, it is still too early to call for any major range break in favor of continued Euro appreciation and broad based USD selling. One major reason for the price action has been the lightened trade on the back of a Japanese holiday, and calendar thin European session. The commodity currencies continue to stand out and have benefited from the overnight USD selling, with Aussie the outperformer in this group on the back of some better than expected ANZ job ads.

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

1)    STERLING    +0.98%
2)    EURO            +0.90%
3)    SWISSIE      +0.82%
4)    AUSSIE         +0.76%       
5)    KIWI              +0.67%
6)    YEN               +0.29%   
7)    CAD               +0.25%

Elsewhere, Fed Bullard has been out reaffirming that US interest rates may remain low for some time, while an FT article outlining the prospects for a Portugal downgrade has generated attention. The only data releases in European trade worth mention were some unimpressive Swiss retail sales numbers and a higher than consensus Norwegian CPI. The Swiss Franc stands out on the day after SNB Hildebrand was back on the wires reaffirming the central bank’s commitment to prevent any excessive appreciation in the Franc. Meanwhile, ECB Nowotny was out reminding markets that while the recovery is underway, things are likely to be gradual.

Looking ahead, its all about Canada, with housing starts (161.8k expected) due at 13:15GMT, followed by building permits (-2.0% expected) at 13:30GMT. Canada business outlook futures sales and the senior loan officer survey cap things off at 15:30GMT.  While the US economic calendar is empty, Fed Lockhart is slated to speak on the economic outlook at 17:45GMT. US equity futures are pointing to a higher open, and commodities are also well bid. 

GRAPHIC REWIND

 
TECHS
 

EUR/USD The market has been locked in a choppy consolidation since basing out by 1.4215 in late December, and it is unclear at this point which way we will go from here. The 200-Day SMA is yet to be challenged, and dips throughout the consolidation have been very well supported just ahead of the longer-term SMA. A break below this SMA will now be needed to open the door for a fresh downside extension and confirmation of a more significant structural shift. Key short-term resistance has been taken out at 1.4485 and this could expose some additional gains to previous support by 1.4625, however ultimately, we continue to retain a bearish outlook and will look for opportunities to sell on approach to 1.4625. 

USD/JPY Despite the latest bounce, the pair still remains confined to a very strong downtrend off the April 2009 highs and any rallies should be limited. However, while a medium-term lower top is now being sought out below 97.80, the latest break above 93.20 warns that the market could still see additional upside before attempting to roll back over. Falling trend-line resistance off of the April 2009 highs comes in at current levels and as such it will be interesting to see if the pair can manage a close above this line. A close above 93.50 could open a direct retest of psychological barriers at 95.00, while failure to do so may suggest that the medium-term lower top is ready to start to form.

GBP/USD The market has now easily cleared support by the 200-Day SMA and psychological barriers by 1.6000 to expose the next downside extension towards key medium-term support at 1.5700. Daily studies are however in the process of unwinding from oversold levels, and we would recommend looking to sell into rallies rather than selling on breaks. Look for any rallies to now be well capped in the 1.6300-1.6400 area, where a lower top is sought out ahead of the retest on 1.5700.

USD/CHF The break back above 1.0340 in recent weeks has been a critical development which now greatly increases the likelihood of a material shift in the structure in favor of additional medium-term USD gains. From here, look for any setbacks to now be very well supported ahead of 1.0020 (78.6% of latest moves), with the market now seen eyeing a test of next resistance by 1.0700 over the coming weeks. Only a close back under parity would give reason for concern.

FLOWS

Asian central bank and reserve manager offers in Eur/Usd; US investment bank buying. US prime name and model funds bidding Gbp/Usd. European names picking up Usd/Cad on dips below 1.0300. Decent sized 0.9300 Aud/Usd option expiry at NY cut.
 

TRADE OF THE DAY

No Trade: Nothing new in the works and already have open exposure through our long Eur/Aud position.

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Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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