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Yen Strength Confounds in Risk Positive Enviornment (Morning Slices)

Friday, 11 September 2009 10:25:11 GMT  |  Joel Kruger, Technical Currency Strategist

There have been no significant developments overnight, but currencies have managed to extend gains against the buck, with the Yen surprisingly standing out as the big gainer, even in the face of improved risk appetite and higher equities. Some have attributed the fresh wave of greenback selling to upbeat Chinese data overnight which helped to fuel additional buying of risk.

MORNING SLICES

Fundys – There have been no significant developments overnight, but currencies have managed to extend gains against the buck, with the Yen surprisingly standing out as the big gainer, even in the face of improved risk appetite and higher equities. Some have attributed the fresh wave of greenback selling to upbeat Chinese data overnight which helped to fuel additional buying of risk. Elsewhere, Japanese consumer confidence data showed an improvement for the eighth straight month and came in broadly in line with expectations. Meanwhile, in the UK PPI came in much stronger than expected and forced some fresh selling on the Eur/Gbp cross. On the official circuit, ECB Bini Smaghi was out saying that the threat of deflation and outbreak of the global crisis seems to have disappeared, while the Treasury’s Dollar admitted that it made sense for China to diversify its massive FX reserves. Finally, the Swedish krona came under pressure after Riksbank deputy governor Svensson said that the market expectation for rates did not accurately reflect the central bank’s less restrictive interest rate path. As we head into the US open, the Yen is the strongest currency against the buck on the day, while the Australian Dollar trades lower and lags.  It is worth noting that technical studies all now show the USD oversold and we would caution bears who are looking to add to short dollar positions. Looking ahead, US import prices (1.0% expected) and Canada’s new house price index (-0.1% expected) are due at 12:30GMT, followed by US wholesale inventories (-1.0% expected) and Michigan confidence (67.5 expected) at 14:00GMT. The US monthly budget statement (-$139.5B) caps things off in the afternoon at 18:00GMT. US equity futures point to a slightly firmer open, while commodities trade flat.

Quant -

For information on the above tables, please visit our Guide to Morning Slices Quant section.

Techs - EUR/USD We are entering optimal levels to start to look to build longer-term and more meaningful short positions. Daily studies are looking to cross above 70 on the RSI and the market should be well capped by resistance in the 1.4600-1.4720 area. Look for any rallies above 1.4700 to be unsustainable with the greater likelihood for a minimum pullback into the 1.4300’s. While the 50-Day SMA is a ways a way at this point, this will be the key medium-term level to watch below. A break will shift the structure. USD/JPY (See below). GBP/USD We continue to maintain a sell on rallies approach to this market with the view that the pair has made a meaningful high above 1.7000 this year. The ensuing price action is more choppy consolidation than any threat of a fresh upside extension beyond 1.7000. Arguably, the market could even be in the process of carving the right shoulder of a head & shoulders top that would project setbacks to 1.5000. Above 1.7000 negates. USD/CHF The multi-week prominent range trade has now been broken to the downside with the market taking out psychological barriers at 1.0500 and descending to fresh 2009 lows into the 1.0300’s thus far. However, with daily studies now oversold, any additional declines are seen limited, in favor of a sizeable corrective bounce back towards the 1.0700-10900 area over the coming weeks.

Flows – Model funds bidding Aussie. Short-term spec stop triggered on long USD positions. US investment house bids in Usd/Jpy below 91.00. 

Trade of the Day – Usd/Jpy: Had been eyeing a break of 91.75 for some time before finally managing to take out the level on Thursday. The market has since accelerated declines with the price dropping towards 91.00. While the overall structure is grossly bearish, we had written this week that any dips below 91.75 would be used as a shorter-term counter-trend buy opportunity, with daily studies retreating into oversold territory. This morning’s setbacks have now officially forced the daily RSI below 30, making the potential for a necessary corrective bounce very real. As a side note, our “speculative sentiment index” has grown increasingly bearish the pair, with the ratio of long to short now at a staggering 4x. It seems as though this ratio is now overinflated as well, which helps to reaffirm our short-term bullish outlook. POSITION: LONG @90.90 FOR AN OPEN OBJECTIVE; STOP @89.40.



P&L Update and Overview: Many of you have been asking for a way to better track trading results and open positions. In response to these requests and in an effort to be fully transparent, a simulated portfolio was been created in June to track and mirror all recommendations and trades. Below is a return on equity curve since inception on June 1, 2009, along with an open and closed position tracker. I am hopeful that this will make things easier for you all.



Additionally, please feel free to check out a full profit and loss statement since inception on June 1, 2009.

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.

Quant section prepared by David Rodriguez, Quantitative Strategist for DailyFX.com
To contact, e-mail drodriguez@fxcm.com

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