Currencies Locked in Holding Pattern Ahead of NFPs

MORNING SLICES (Abridged)

FUNDYS

Although the lack of any material economic releases thus far on Friday has kept things very quiet over the past several hours, market participants continue to experience some very choppy price action in the major currencies. The biggest development overnight has been the Japanese authorities’ efforts to push for a weaker Yen. Talk of the BOJ considering easier policy, the MOF raising the intervention limit, FinMin Kan seeing Yen strength softening, and pension funds persistently on the bid in Usd/Jpy, have all helped to reinforce and corroborate this view.

Relative Performance Versus USD on Friday (As of 9:25GMT) –

1)    KIWI               +0.44%
2)    AUSSIE          +0.23%
3)    SWISSIE       +0.10%
4)    EURO             +0.09%       
5)    STERLING    +0.07%
6)    CAD                -0.11%   
7)    YEN                -0.29%

Consequently, we have been seeing some good demand for Yen crosses overnight, with both Eur/Jpy and Gbp/Jpy potentially looking to base out from their respective lows. We have also been seeing some relative weakness in the Australian Dollar, which has been giving some of its gains back against the Euro and Sterling. Overall, Eur/Usd remains impressively offered on any form of a rally, and it appears that the USD bull trend is not yet ready to relinquish its hold.

Elsewhere, Eurogroup’s Juncker has been out downplaying the need for a Greek bail-out, while also saying that he is very happy with the current proposed measures from Greece to get their budget deficit down to a more manageable size. Nevertheless, we have seen EMU debt spreads widen out as a German official rejects speculation of a financial rescue for Greece.

Looking ahead, all eyes will be on US Non-Farm payrolls (-65k expected) and unemployment (9.7% expected) due at 13:30GMT. Consumer credit (-3.8B) is due out later in the day and caps things off for the week at 20:00GMT. US equity futures are mildly bid, while commodities track higher, with oil leading.
 

GRAPHIC REWIND
 

TECHS

EUR/USD: Setbacks have stalled for now ahead of  1.3400 (61.8% fib retrace of the 2008-2009 low-highs), and although the overall structure remains bearish, the market looks as though it may be attempting to carve out a short-term base.  However, it is still too difficult to call and the market could just as easily be in the process of a bearish consolidation ahead of the next major downside extension below 1.3440. A break back below 1.3440 will expose a test by next psychological barriers at 1.3000, while a close back above 1.3700 delays and opens the door for some additional short-term corrective upside.

USD/JPY: Currently in the process of chopping around, with the market most recently rolling over after stalling out above 92.00. Nevertheless, our core outlook in the pair is bullish, and we recommend looking to buy into the current dip. A bullish outside day on Thursday confirms our outlook with a resumption of gains now seen back towards initial resistance by 90.35 over the coming sessions. Only back below 88.00 negates and gives reason for pause.

GBP/USD: The most recent bout of bearish consolidation has been broken, with declines below critical psychological barriers by 1.5000 now exposing next psychological support by 1.4500 further down. Daily studies are however oversold, and we would prefer selling into rallies. The 10-Day SMA has more or less capped rallies over the past several days, so we would recommend looking to sell on a rally back towards the shorter-term SMA which currently comes in by 1.5200.    

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 1.0600 in favor of a bullish continuation through 1.1000 and towards 1.1500 further up.  Only back under 1.0600 would delay and give reason for pause.
 

FLOWS

Hedge fund demand for downside strikes in Gbp/Usd. Importer and investor buying in Usd/Jpy Stops cited below 1.0200 in Usd/Cad. Large funds looking to sell Eur/Usd into rallies.
 

TRADE OF THE DAY

No Trade: No new recommendations at the moment and currently running open positions in Eur/Aud, Eur/Cad, Gbp/Aud, and Gbp/Jpy. 
 

PORTFOLIO OVERVIEW
 

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