Markets are once again back under pressure after Tuesday’s equity market gains were entirely wiped out (9th worst point drop on record for Dow). Fear and panic remain firmly in control, and gold prices continue to soar to record highs beyond $1800. The US Dollar has been a major beneficiary of the safe haven liquidation, while the Franc and Yen are also incredibly well bid. Meanwhile, the higher yielding commodity bloc has been decimated, and the Australian Dollar has led the declines. A weaker batch of employment data out of Australia has not helped the antipodean’s cause, with the unemployment rate rising to 5.1% and coming in well above the 4.9% expectation.
Elsewhere, contagion fears in Europe have picked up, with market participants seriously worrying about the ability for the Eurozone economy to recover from what appears to be a very deep and messy crisis. The attention has shifted to Italy, with the country’s banking sector falling apart, while France’s credit worthiness is also in the spotlight following the S&P downgrade of US ratings. Any additional deterioration in the Eurozone could seriously compromise the credibility of the EFSF. Looking ahead, the economic calendar for the remainder of the day is mostly second tier, and markets should continue to trade off of the broader global macro themes and developments.
EUR/USD: The market continues to adhere to a bearish sequence of lower tops since May, with a fresh lower top now in place by 1.4535 ahead of the next downside extension back towards and eventually below 1.4000. In the interim, look for any intraday rallies to be well capped ahead of 1.4400, while only back above 1.4500 delays.
USD/JPY: Setbacks have stalled out just ahead of the 76.25 record lows from March, with the market dropping to 76.30 ahead of the latest reversal. Given that we are seeing the rate by record lows, we would not at all be surprised to see the formation of a material base in favor of significant upside back towards the 82.00 area over the coming sessions. However, the overall structure still remains bearish and it will take a break back above 80.00 to officially alleviate downside pressures and confirm reversal prospects. Below 76.25 negates.
GBP/USD: The market remains locked in a broader downtrend off of the April highs, and a fresh lower top is now sought out somewhere ahead of 1.6550 in favor of the next downside extension back towards the recent range lows at 1.5780. Ultimately, only a break back above 1.6550 would delay bearish outlook and give reason for pause, while back under the 200-Day SMA at 1.6085 should accelerate declines.
USD/CHF: Despite the intense downtrend resulting in recently established fresh record lows by 0.7000, short/medium/longer-term technical studies are violently stretched, and we continue to like the idea of taking shots at buying in anticipation of a major base. Still, at this point, fading this trend will require some upside confirmation and we would look for a break and close back above 0.7350 at a minimum to open the door for these reversal prospects and alleviate immediate downside pressures.
Written by Joel Kruger, Technical Currency Strategist
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