Aussie Sees Whipsaw Price Action in Otherwise Quiet Start to Week

FUNDYS

Overall, it has been a relatively quiet start to the week, with the markets pretty much confined to familiar ranges ahead of the North American open. A quiet economic calendar has certainly helped to contribute to this, with the only key release coming from some German and Eurozone PMI data which was on the whole quite mixed. The Euro trades flat as a result and now looks ahead to North America for more direction.

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

1. YEN+0.33%
2. KIWI+0.28%
3. AUSSIE +0.23%
4. CAD+0.20%
5. STERLING+0.15%
6. EURO-0.13%
7. SWISSIE-0.18%

The busiest currency on the day has undoubtedly been the Australian Dollar, which was well offered early on following the news of a hung parliament, but soon managed to recover to fresh daily highs as market participants shrugged off any real negativeimpact on the economy and currency from the election uncertainty.

Elsewhere, there was official talk on intervention out fromJapan and Switzerland, with PM Kan and BOJ Shirakawa conversing on FX rates, and SNB Hildebrand reminding markets that the Swiss central bank could still intervene in the markets. While the Yen comments have been more expected of late given the recent banter out from Japan on the subject, the Swiss comments are more unexpected after the central bank has been quiet for some time. Surely the Eur/Chf drop back towards its record lows below 1.3100 is reason for concern and we are seeing Hildebrand respond accordingly.

Looking ahead the Chicago Fed national activity index (-0.10 expected) at 12:30GMT is the only economic release due in North American trade. Meanwhile, on the official circuit, Fed Hoenig is slated to testify at a congressional hearing in Kansas at 14:30GMT. US equity futures and oil prices are tracking modestly higher on the day, while gold trades marginally lower.

GRAPHIC REWIND

TECHS

EUR/USD: Friday’s drop below 1.2730 confirms a fresh lower top now in place by 1.2925 and opens the next downside extension towards the 1.2500 area over the coming days. Overall there is room for continued weakness ahead, and our outlook would only be compromised with a break back above 1.2925. In the interim, look for any intraday rallies to be well capped ahead of 1.2800.

USD/JPY: Critical support by 84.80 has finally been broken to open some fresh multi-year lows by 84.70 thus far. Next key support comes in by 84.45, with a break below this level exposing the monthly lows from June 1995 further down at 83.50. However, as we have already warned, daily studies are starting to look stretched, and with 84.80 finally broken, any additional declines should be very well supported ahead of 83.50 in favor of a much needed upside reversal. A break and close back above 86.40 will be required at a minimum to relieve downside pressures.

GBP/USD: Setbacks continue to be well supported on a close basis above the 200-Day SMA, with the market in the process of consolidating the latest declines. However, the overall structure is looking quite heavy, and the risks from here are for a clear and sustained break below 1.5500 and back towards the 100-Day SMA in the 1.5100 area over the coming days. Any rallies should be well capped ahead of 1.5700.

USD/CHF: Has managed to break to yet another multi-week low below 1.0300 to now potentially open a fresh downside extension towards the yearly lows from January by 1.0130 over the coming sessions. However, at this point, it is still too difficult to call, and with medium-term studies looking stretched, we would be more inclined to be looking for opportunities to buy rather than sell. The market has still managed to hold above 1.0300 on a close basis and the recent multi-week range is more or less intact with the market just as easily seen bouncing sharply back towards 1.0600.

FLOWS

Talk of official bids in Usd/Jpy and Usd/Chf but unsubstantiated and more likely that will see such action if these rates drop lower. Leveraged accounts selling Eur/Usd. Model fund bids in Aussie, Kiwi and Cad. Corporate selling of Sterling.

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

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