MORNING SLICES
FUNDYS
First it was the Hungary/IMF news that should have marked a serious dent in demand for the Euro, and then a Moody’s downgrade to Ireland, followed by reports that German lender Hypo Real Estate had failed the stress tests. After all was done, the Euro managed to close slightly higher on the day on Monday, and it now appears that there is very little to deter the currency from continuing on its intense recovery path. The latest source of Euro strength to fresh multi-day highs by 1.3029 comes from an article in the FT entitled “Fed Eyes Options for Looser Monetary Policy.”
Relative Performance Versus USD on Tuesday (As of 9:35GMT) –
1) AUSSIE +1.12%
2) KIWI +0.93%
3) CAD +0.30%
4) SWISSIE +0.17%
5) EURO +0.07%
6) STERLING -0.07%
7) YEN -0.18%
The main take away from the article is that without the threat of inflation, the Federal Reserve still has the luxury of continuing to practice its ultra accommodative policy as the fear of a double dip recession and global slowdown still lingers. This fact in conjunction with an ECB and BOE that need to more actively address inflation threats has resulted in a notable divergence in policy that ultimately can be attributed for some of the recent currency buying and USD weakness. The appreciation in the Yen over the past few weeks has also put the BOJ in a similar position to the Fed as explained in a WSJ piece on Tuesday, which says that the central bank would consider taking action at Usd/Jpy 85.00. This in turn has forced some selling of the Yen to put the single currency at the bottom of the pack.
One of the key releases in Tuesday trade thus far has been the RBA Minutes. While the release itself failed to materially impact price action after there were no surprises, ensuing comments from RBA Stevens that left the door wide open for additional rate hikes helped to force a major intraday rally that has resulted in Aussie’s status as top performing major currency on the day. On the other side of the coin, Sterling has been an underperformer in Tuesday trade, with the Pound getting hit on the back of a round of softer data highlighted by disappointing public sector finance data.
Key event risk for the day lies just ahead, with the Bank of Canada set to decide on rates 13:00GMT. It is widely expected that the RBC raise rates 25bps to 0.75% given some recently strong economic data. However, the broader global economy also needs to be taken into consideration and it will be interesting to see how the central bank addresses these issues in their accompanying statement. Any signs that the RBC will continue on its path of tightening should ultimately bode well for the entire commodity bloc, while hints of a more cautious tone could have the opposite impact and force some heavy selling in the Canadian Dollar and other commodity currencies.
Economic releases due out in North American trade are all out at 12:30GMT in the form of US housing starts (-2.7% expected) and building permits (0.2% expected). On the official circuit, Fed Tarullo testifies in front of the Senate Banking Committee at 14:00GMT. US equity futures point to a marginally lower open, while oil trades higher and gold mildly lower.
GRAPHIC REWIND
TECHS
EUR/USD: Price action producing some mixed signals at current levels and difficult to establish clear directional bias. On the one hand, we have seen a 3 day close above the 100-Day SMA with the market very well bid over the past several weeks to suggest that more significant upside is to be expected. However, on the other hand, the broader downtrend still remains intact and there is also the strong possibility for a bearish resumption with daily studies now looking stretched and the market reversing course after finally taking out 1.3000 on Friday. As such, we recommend that traders stay on the sidelines and look to see where the market settles at the Tuesday close for a better indication of where we could be headed. Next key topside resistance comes in by 1.3090, while there is no real support until 1.2780.
USD/JPY: The break and close back below 87.00 on Friday is concerning and could now open the door for additional declines towards the multi-year lows by 84.80 over the coming days. Daily studies are however oversold and any additional setbacks beyond 85.00 should ultimately be limited. As such, our recommendation is to look to buy into any dips towards 84.80 over the coming sessions in anticipation of a major upside reversal. 87.50 is the key short-term level to watch above and a break should relieve downside pressures.
GBP/USD: Any attempts for a bearish resumption have been put on hold with the market being well supported on dips into the 1.5000 area which coincides with both the 20/100-Day SMAs. Nevertheless, we retain a bearish outlook and look for any additional rallies to be capped ahead of 1.5500 on a close basis. Friday’s and Monday’s price action is somewhat reassuring with the market stalling out ahead of 1.5500 and reversing sharply back below 1.5300. Next support comes in by 1.5100 and a close below this level should help to accelerate declines further. Only back above 1.5500 negates and gives reason for concern.
USD/CHF: Setbacks have finally found some interim support by 1.0400 ahead of the latest minor bounce. Daily studies have been highly oversold, and the latest positive cross of the RSI back above 30 could finally warn that a base is in place. Longer-term technical studies show good reason for the market to try and base out at current levels and as such, we like the idea of some major upside over the coming days and weeks. However, a break back above 1.0680 will now be required to confirm basing prospects and accelerate gains.
TRADE OF THE DAY
USD/CAD: The latest impressive hold on a close basis above the 100-Day SMA down by 1.0300 was highly impressive and in our opinion solidified the prospects for significant upside. Indeed, the market managed to rally some 300 points over the past few days since bouncing out from the 100-Day, and we continue to see the risks for major upside ahead, with any dips to be used as a formidable opportunity to build on longs. Fundamentals are sure to heavily influence price action today with the Bank of Canada due up at 13:00GMT. However, while the RBC is likely to raise rates by 25bps, the market has already priced this in and the greater risk is to the downside with any signs of a moderation in policy to heavily weigh on CAD. As such, we will look to buy if given the chance on a dip to previous resistance turned support in the 1.0400 area, with the daily ATR (projected daily low) giving us a more precise entry point by 1.0420. STRATEGY: BUY @1.0420 FOR AN OPEN OBJECTIVE; STOP 1.0270. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON TUESDAY.
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.
If you wish to discuss this topic or any other feel free to visit our Forum page
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.
If you wish to discuss this topic or any other feel free to visit our Forum page
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from FXCM.
