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Commodity Bloc Currencies Showing Signs of Relative Weakness

Commodity Bloc Currencies Showing Signs of Relative Weakness

2012-02-10 07:03:00
Joel Kruger, Technical Strategist
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  • Greek progress fails to inspire significant market reaction thus far
  • Euro is however managing to outperform the commodity bloc
  • Softer China trade data and a downbeat RBA statement weigh on Aussie
  • US equity futures looking top heavy; could be poised for fresh drop
  • USD/JPY continues to show signs of complex basing pattern

The response to the second Greece bailout has so far been less than impressive, with the Euro failing to materially extend gains against the buck on the news of Greek politicians agreeing to the austerity measures needed to unlock Eur130B aid money. However, one interesting development has been the outperformance in the Euro relative to the commodity currencies, and this could be where the single currency stands to benefit the most from the Greece news.

The Euro has been under tremendous pressure against the commodity bloc for some time now, resulting in fresh record lows against both Aussie and Kiwi, and the latest developments in conjunction with some not so positive news for the commodity currencies could tip the scales a bit back in favor of the Euro. We have been seeing an ongoing deterioration in Chinese economic data, with the most recent trade data reflective of the softening fundamentals, and this should be a knock against the correlated Australian and New Zealand Dollars.

Additionally, the RBA statement was rather downbeat after the central bank revised down its inflation and growth forecast for 2012. It is also worth noting that incoming RBA board member Heather Ridout was on the wires describing the Australian Dollar as having too much froth in it. Still, we would not get overly bearish on the Australian Dollar just yet, as this is a market that has continued to remain exceptionally well bid on any form of a dip given the highly attractive yield differentials. Our core bias is aggressively bearish on the Australian Dollar both technically and fundamentally, but at this point, there is no sense in exercising this bias just yet. We have already begun to build short Aussie positions, but will wait for a little more confirmation before increasing our exposure.

Elsewhere, USD/JPY continues with its impressive recovery and the prospects for material basing our once again looking like a solid possibility. Next key resistance comes in by 78.05-78.30 in the form of the 200-Day SMA and some key multi-day range resistance, and a break above here could very well accelerate gains towards the critical October highs at 79.55. EUR/CHF has also been very well supported in recent trade, and the SNB will find comfort in the cross’ break back above 1.2100. US equity futures are tracking lower on the day and we would also recommend keeping a close watch on these markets. Technical studies are looking quite stretched and we anticipate some bearish price action over the coming sessions.

ECONOMIC CALENDAR

Commodity_Bloc_Currencies_Showing_Signs_of_Relative_Weakness_body_Picture_5.png, Commodity Bloc Currencies Showing Signs of Relative Weakness

TECHNICAL OUTLOOK

Commodity_Bloc_Currencies_Showing_Signs_of_Relative_Weakness_body_eur.png, Commodity Bloc Currencies Showing Signs of Relative Weakness

EUR/USD: The latest multi-session consolidation has been broken, with the pair clearing resistance at 1.3235 and opening a test of the 100-Day SMA just over 1.3300. Given the recent consolidation range of approximately 200 points (1.3025-1.3235), we will leave the door open for a move towards the 1.3450 area before the market eventually looks to stall out and carve a more meaningful lower top ahead of broader underlying bear trend resumption. A break back below 1.3025 is now required to officially alleviate immediate topside pressures.

Commodity_Bloc_Currencies_Showing_Signs_of_Relative_Weakness_body_jpy2.png, Commodity Bloc Currencies Showing Signs of Relative Weakness

USD/JPY:The market could once again be looking to carve an interim base after setbacks stalled shy of the record lows from October by 75.55. The latest daily close back above 77.00 should do a good job of alleviating immediate downside pressures and reintroducing longer-term basing prospects. From here, look for an acceleration of gains back towards next key resistance by 78.05-78.30 further up which represents the 200-Day SMA and some key range resistance. At this point, only back under 76.50 would negate outlook and give reason for concern.

Commodity_Bloc_Currencies_Showing_Signs_of_Relative_Weakness_body_gbp2.png, Commodity Bloc Currencies Showing Signs of Relative Weakness

GBP/USD: Gains have stalled out just shy of the 200-Day SMA for now and the market looks to be entering a fresh period of consolidation before considering the next major move. Key levels to watch above and below come in by 1.5930 and 1.5730 respectively, and a daily close above or below will be required for clearer directional bias. A close below 1.5730 could open the door for some broader underlying bearish resumption, while back above 1.5930 exposes the October highs by 1.6170 further up.

Commodity_Bloc_Currencies_Showing_Signs_of_Relative_Weakness_body_swiss1.png, Commodity Bloc Currencies Showing Signs of Relative Weakness

USD/CHF: Although our overall outlook remains intensely bullish, the market is in the process of some interday corrective activity before the next major upside extension beyond 0.9600 and towards parity. However, look for any setbacks to be very well supported into the 0.9000 area, with the level representing a key psychological barrier and also coinciding with the lower Bollinger band. For now, a break back above 0.9265 will officially be required to confirm outlook and alleviate immediate downside pressures.

--- Written by Joel Kruger, Technical Currency Strategist

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

To be added to Joel Kruger’s distribution list, send an email with subject line “Distribution List” to jskruger@dailyfx.com

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