Cross Country: Mid-Day Update and Analysis of Selected Cross Rates

MIDDAY SNAPSHOT

The lack of event risk on Monday leaves traders with a continued focus on the broader global macro developments and any sign of progress with the delayed bailout plan. The FX market continues to show a stronger desire to trade back into risk with the USD selling off and the Yen crosses and EUR/CHF rallying. This is in contrast to equities which track only marginally higher on the day. In Canada, housing starts came in weaker than expected but as has been the case of late with the Canadian data, it failed to materially factor into price action. A large chunk of US corporate earnings are now behind us and the results are far from pretty with operating earnings on pace to drop about 40%. This would be the worst print on record for this series. BusinessEurope has called for lower rates in the Eurozone while the lobby also feels that the ECB should seriously consider adopting a quantitative easing policy. EU Juncker has expressed concern over the lack of economic policy coordination between the EU member states. Treasury Secretary Geithner has put off his announcement of a bank stability plan to Tuesday. Talk of a large macro fund and option accounts on the offer in Aussie, but this has failed to stall gains. Euro gains have been fueled this morning by Swiss account and model fund buying. Japanese accounts have been on the bid in EUR/JPY. EUR/GBP bids have been starting to attract attention. Commodities are once again diverging with oil up over 4.0% while gold is seen down 1.5%. 



Eur/Jpy price action is constructive now following the latest break above 119.55 (19Jan high) to confirm short-term basing and trigger a double bottom. The cross has been well supported on dips below 115.00 with the market seemingly content on building a base by the latter ahead of a more significant corrective rally. Look for fresh upside over the coming days back towards initial resistance by 122.20 (19Jan high). Only back under 117.00 negates and delays recovery. Ultimately, the break of the neckline should project eventual upside towards the 126.00-127.00 area which coincides with the 78.6% fibo off of the 131.05-112.10 move.


 

Eur/Gbp has been in a steep decline since positing life-time highs at 0.9805 in late December to reach 0.8660 on Friday ahead of the latest minor bounce. However, daily studies are now starting to look a little stretched, and with the cross bouncing off of former resistance by 0.8665 (13Nov high), the risks are for a short-term reversal back towards the 0.9000 area over the coming days before another  lower top can take form and open a resumption of the broader downtrend. Look for a break back above 0.8795 (Friday’s high) to confirm short-term reversal prospects. Back under 0.8660 negates.  


   

Eur/Nzd is rolling over after posting fresh multi-year highs by 2.5805 last Wednesday. Friday’s close at 2.4145 also officially confirmed the formation of a key bearish outside week and likely opens the door for a more significant corrective pullback over the coming days/weeks. There is little in the way of any real support now and ultimately we favor deeper setbacks to challenge the 100-Day SMA by 2.3200 which has managed to support dips over the course of the majority of the uptrend from early 2008. A close below the 50-Day SMA at 2.4240 will strengthen short-term bearish outlook and accelerate the decline. 

Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
To contact the author of this report, e-mail jskruger@fxcm.com