Currencies Higher; Commodity Bloc Lags

MORNING SLICES

FUNDYS

However, it is the major currencies that have jumped in front, with the normally better bid commodity bloc lagging behind. There has been no apparent direct catalyst for the moves, with most citing the price action as flow based decent stop losses being triggered following a multi day consolidation. We have seen a great deal of major/commodity selling over the past several weeks, and perhaps investors are beginning to look to book profits on long commodity positions given the extremity of the moves. One potential explanation for the lag in the commodity currencies are the ongoing rumors of a potential tightening from China, which ultimately would weigh most heavily on the Australian economy and Australian Dollar.

Relative Performance Versus USD on Friday (As of 10:30GMT) –

1)    SWISSIE      +0.89%
2)    EURO            +0.72%
3)    STERLING    +0.64%
4)    KIWI              +0.40%       
5)    AUSSIE         +0.29%
6)    YEN               +0.24%   
7)    CAD               +0.17%

Another noticeable mover on the day has been the Eur/Chf cross, which has broken down through some major consolidation support just under 1.4600. This cross rate has barely moved in recent weeks and many pay close attention to any unusual moves, particularly to the downside, given the SNB’s reputation for getting involved. It appears that the Swiss central bank has been less comfortable with a stronger currency when the USD is offered, and today’s USD bearish price action could be just the catalyst for some sudden and aggressive SNB intervention.

Elsewhere, two articles in European newspapers are getting attention on Friday, with one in the UK Telegraph warning of the looming debt crisis, while the other, from an Austrian newspaper, outlining prospective bailout deal for Greece involving Germany and France. Some secondary data released on the session has not hurt the Euro’s rally, with Eurozone industrial production coming in stronger than expected.

Looking ahead, all eyes turn to Canada employment data at 13:30GMT (16k and 8.3% expected), also accompanied by the heavily watched US retail sales print (-0.2% expected). University of Michigan confidence (74 expected) then follows at 14:55GMT, followed by business inventories (0.2% expected) at 15:00GMT. US equity futures point to a slightly firmer open, while commodities are well bid.

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 Has been very well supported on dips towards 88.00, and we look for the most recent sharp rebound to open additional upside over the coming weeks back above critical medium-term resistance at 93.75. Last Thursday and Friday’s impressive rally reaffirms our outlook and only a close back under 88.00 would ultimately negate and give reason for pause. 

GBP/USD Although the market remains locked in an intense downtrend, daily studies are in the process of unwinding from oversold levels. The risks from here are for some additional corrective relief, but ultimately, any gains should now be well capped ahead of 1.5200, where a lower top is sought out ahead of the next major drop below 1.4780.

USD/CHF The rally has finally stalled out for now ahead of 1.0900, with the market in the process of correcting from overbought levels. The risks from here are for some additional weakness back towards the 1.0500 area, from where a fresh higher low will be sought out ahead of the next major upside extension beyond 1.0900.

FLOWS

Option players actively involved in Eur/Usd rally. Option expiry at 0.9200 in Aud/Usd today. UK clearer selling Usd/Chf. Semi-official bids in Eur/Chf. Hedge fund on the bid in Yen crosses.
 

TRADE OF THE DAY

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

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