FUNDYS
All is quiet in the markets thus far on Monday with currencies locked in some tight consolidation in Europe.Price action for the remainder of the day should be rather boring, with US markets closed for the holiday Monday and market participants fully aware of the lack of liquidity that will result from this. The most interesting moves in the FX market on Friday came from the Yen and Swissie, with both currencies selling off quite sharply following the US data, but then returning to form and rallying to close back by daily opening levels. Both currencies trade by significant highs against the USD and should continue to be watched closely as their fates are most probably tied to the fate of the broader markets. Risk has been a main theme over the past several months and both the Yen and Swissie are heavily correlated to this theme. We have actually been hearing that many hedge funds have officially bailed out of their long Usd/Jpy positions, which could open the door for yet another drop to fresh multi-year lows.
Relative Performance Versus the USD on Monday (As of 10:30GMT)
- KIWI +0.24%
- CAD +0.28%
- SWISSIE +0.16%
- YEN +0.12%
- AUSSIE -0.07%
- EURO -0.08%
- STERLING -0.56%
The Bank of Japan policy meeting is underway and continues through Tuesday, and we suspect that we may start to hear more rhetoric over the state of the Yen as the meeting reaches its latter stages. In Australia, it looks as though some clarity is starting to come through with regards to the latest election, with Labour the likely candidate to emerge as the party to take control. The RBA is also set to meet on Tuesday and it is widely expected that the Australian central bank will leave rates on hold.
The only currency really on the move is Sterling which has been sold down, there is talk of flow-related pound sales in the yen and euro for repatriation purposes. It is also possible that after three weak PMIs and more poor housing data out of the UK last week traders are taking the opportunity to offload pounds. The sole release in Europe was the Euro-zone sentix investor confidence which came in weaker than forecast. Looking ahead, trade is likely to remain subdued for the remainder of the day with severely limited liquidity while the US is closed.
GRAPHIC REWIND
TECHS
EUR/USD: The market continues to correct out from the late August 1.2585 lows, with the latest gains now threatening a break back above some key short-term resistance by 1.2925. A break above this level will delay bearish outlook and likely open a fresh upside extension towards 1.3030. However, any additional gains from there are seen limited, with the greater likelihood for a bearish resumption. For now, 1.2775 is the key level to watch below with a break back below this level required to put the focus back on the downside.
USD/JPY: While the market trades below the 20-Day SMAs on a close basis, the downtrend remains intact and deeper setbacks below 83.60 can not be ruled out. A close above the 20-Day SMA will be required at a minimum to offer some form of relief to downside pressures. The market has not closed above the 20-Day SMA since mid-June when the pair was trading over 90.00. A break below 83.60 will open a test of next key psychological barriers by 83.00.
GBP/USD: The market looks poised for a fresh drop following the latest bout of consolidation, with a lower top now confirmed by 1.5600, following the break back below 1.5370. Below 1.5370 now exposes a more meaningful drop to test next key medium-term support by the 100-Day SMA in the 1.5100 area. Ultimately, only back above 1.5700 would negate bearish bias and give reason for pause.
USD/CHF: Has finally managed to take out the yearly lows from January by 1.0130, with the market easily dropping below this level to 1.0065 thus far. However, any additional declines below 1.0065 are seen limited, with medium-term studies looking stretched. As such, we would be more inclined to be looking for opportunities to buy at current levels. For now, a break and close back above 1.0265 will be required to relieve immediate downside pressures.
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Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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