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Risk Correlated Assets Well Offered on Rallies in European Session

By Joel Kruger, Technical Strategist
22 May 2012 10:54 GMT

  • Euro rallies met with very solid offers above 1.2800
  • Risk correlated assets back under pressure in European session
  • Fitch downgrades Japan ratings; Yen sells off
  • OECD and IMF out with some downbeat global comments
  • UK inflation softer than expected

Early rally attempts in risk correlated assets on Tuesday were met with solid resistance in the European session. Market participants shrugged off upbeat news that Germany and France would make strong efforts to keep Greece in the EMU, and the reports that Greek banks would receive a Eur18B recapitalization down payment on Friday. Instead, focus remained on a Fitch downgrade to Japan, and downgraded Chinese growth forecasts from the OECD.

Relative performance versus the USD Tuesday (as of 10:45GMT)

CAD -0.10%

GBP -0.42%

AUD -0.43%

JPY -0.50%

CHF -0.53%

EUR -0.55%

AUD -0.59%

The IMF also came out with some downbeat comments, adding to an intense intraday pullback in the Euro from levels above 1.2800 down into the mid-1.2700’s. From here, it will be interesting to see how things play out into North American trade, but with US equity futures already pointing lower, things are not looking pretty. Still, market conditions are quite choppy right now and we continue to recommend staying on the sidelines.

ECONOMIC CALENDAR

Risk_Correlated_Assets_Well_Offered_on_Rallies_in_European_Session_body_Picture_5.png, Risk Correlated Assets Well Offered on Rallies in European Session

TECHNICAL OUTLOOK

Risk_Correlated_Assets_Well_Offered_on_Rallies_in_European_Session_body_eur.png, Risk Correlated Assets Well Offered on Rallies in European Session

EUR/USD:The market remains under intense pressure and the focus for now is squarely on a retest of the 2012 lows from January at 1.2625. While we would not rule out a possibility of a test of this level over the coming sessions, short-term technical studies are correcting from oversold and are showing a need for some form of a corrective bounce from where a fresh lower top is sought out. Ultimately however, any rallies should now be very well capped by previous support turned resistance at 1.3000 in favor of additional weakness over the medium-term that projects deeper setbacks into the lower 1.2000's.

Risk_Correlated_Assets_Well_Offered_on_Rallies_in_European_Session_body_usd.png, Risk Correlated Assets Well Offered on Rallies in European Session

USD/JPY:The market continues to consolidate around 80.00 and is in the process of looking for a medium-term higher low ahead of the next major upside extension back above the yearly highs at 84.20 and towards 90.00 further up. However, for the time being it remains in question whether the market will still head lower towards the 200-Day SMA by 78.50 before ultimately reversing higher. The key level to watch above comes in by 80.60, and a break and close above this level will officially alleviate downside pressures and suggest that a higher low has now been carved in the 79.00's.

Risk_Correlated_Assets_Well_Offered_on_Rallies_in_European_Session_body_gbp.png, Risk Correlated Assets Well Offered on Rallies in European Session

GBP/USD:The market remains under intense pressure since breaking back below 1.6000 and setbacks could now extend towards next key support in he 1.5600 area over the coming sessions. Still, daily studies are now stretched and we would prefer looking to sell into rallies towards 1.6000 where a fresh lower top is sought out.

Risk_Correlated_Assets_Well_Offered_on_Rallies_in_European_Session_body_usd_1.png, Risk Correlated Assets Well Offered on Rallies in European Session

USD/CHF:Overall the structure remains highly constructive and we continue to project additional upside over the coming months back above parity. For now, the latest break and close above 0.9335 is expected to accelerate gains for a retest of the yearly highs by 0.9600, while any intraday pullbacks should be very well supported ahead of 0.9200. Ultimately, only back under 0.9000 would negate outlook and give reason for pause.

--- Written by Joel Kruger, Technical Currency Strategist

To contact Joel Kruger, email jskruger@dailyfx.com. Follow me on Twitter @JoelKruger

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22 May 2012 10:54 GMT