Currencies Lack Direction in Lightened European Session

MORNING SLICES

FUNDYS

The markets seem to have now fully digested the latest surprising move by the Fed in which the central bank raised the discount rate by 25bps, with risk appetite back on Monday, as global equities and commodities start out the week on a very healthy note.  While Sterling has managed to put in some gains against the buck, the single currency remains under pressure on the crosses, with growing fears over a hung parliament and rising debt concerns weighing on the Pound. Data in Australia has come in on the weaker side, after new motor vehicle sales in January fell for the first time since July 2009. Some of the Aussie cross rates are looking highly overbought and we would expect to see some form of a reversal (ie relative Aussie weakness) over the coming days.

Relative Performance Versus USD on Monday (As of 9:40GMT) –

1)    KIWI                +0.29%
2)    AUSSIE          +0.11%
3)    STERLING     +0.06%
4)    CAD                +0.05%       
5)    YEN                 +0.05%
6)    EURO              +0.04%   
7)    SWISSIE        +0.02%

Elsewhere, S&P has come out assuring Japan’s sovereign debt status after saying that there was a low chance of downgrading the country within the year. Well know macro investor George Soros has been on the wires expressing his concerns over the outlook for the Euro. This is a departure from the famed investor’s usual criticisms on the USD outlook. Soros says that the Euro will face bigger tests than Greece, with the threat of contagion into Spain, Italy, Portugal and Ireland.

China has come out announcing that it will maintain an appropriately loose monetary policy this year with the intent of balancing the objectives of growth against inflation expectations. Meanwhile, in the Eurozone, there has been some more upbeat talk on Greece from the Greek central bank head. Provopoulos has said that he is confident that the country’s objectives will be met to alleviate the current debt concerns. Finally, the IMF has been out reevaluating their long-term benchmark economic views of lower inflation and free flowing cross border money transfers.

Looking ahead, the calendar in North American trade is light, with the only notable releases coming in the form of the Chicago Fed National Activity Index (-0.19 expected) at 13:30GMT, and Dallas Fed Manufacturing (10.0% expected) at 15:30GMT. US equity futures point to a firmer open, while commodities have also reversed course and track higher. All major currencies with the trade higher against the buck on the day, with Kiwi leading the way. 

GRAPHIC REWIND
 

TECHS
 

EUR/USD The break below 1.3530 on Thursday now marks an end to the latest consolidation and opens a fresh downside extension that ultimately exposes a drop towards 1.3000 over the coming days. Next key short-term support comes in by 1.3420-50, and we look for a test of this level over the coming sessions. Daily studies are however looking stretched, so we would prefer to recommend looking to sell into rallies, rather than selling downside breaks. Look for a fresh lower top to carve out below 1.3840, ahead of the next downside extension. 

USD/JPY Has finally ended the latest bout of consolidation with the market breaking back above key short-term resistance at 91.25 to now open the door for fresh upside over the coming days. The break back above 91.25 now completely negates the violent single-day pullback from a couple of weeks back and potentially exposes a direct retest of next key resistance by 93.75 further up. Any intraday setbacks should be well propped ahead of 90.00.  

GBP/USD The break below 1.5535 on Thursday now marks an end to the latest consolidation and opens a fresh downside extension that ultimately exposes a drop towards 1.5000 over the coming days. Next key short-term support comes in by 1.5295-1.5350, and we look for a test of this level over the coming sessions. Daily studies are however looking stretched, so we would prefer to recommend looking to sell into rallies, rather than selling downside breaks. Look for a fresh lower top to carve out below 1.5815, ideally by the 10-Day SMA, which currently resides in the 1.5600’s.   

USD/CHF Continues to press higher with the market now fast approaching our 1.1000 objective from a few weeks back. A major base looks to be firmly in place and any setbacks are expected to be well supported ahead of 1.0500 in favor of a bullish continuation through 1.1000 and towards 1.1500 further up.  Daily studies are starting to look stretched so we do not rule out the possibility for a short-term pullback towards 1.0650-1.0700. 

FLOWS

European bank recommends short Gbp/Usd position targeting return to 1.5000. Private client offers in Kiwi on rallies. Canadian importers buying Usd/Cad by 1.0350.
 

TRADE OF THE DAY

No Trade: Currently running long Euro/Commodity positions and no new set-ups just yet.

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