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Euro Better Bid into North American Trade

Euro Better Bid into North American Trade

2010-02-26 10:24:00
Joel Kruger, Technical Strategist
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MORNING SLICES

SLICES LOGO

 

FUNDYS



A lot of arguably USD supportive developments on Thursday; with more hawkish rate expectations in the US, escalating concerns over Greece, debt and political worries in the UK, and consequently lower equity and commodity prices, all factoring into the push for a stronger buck. However price action has been quite telling, with the Euro managing to close marginally higher on the day, despite everything that was thrown at it. The major currency has been beaten down severely over the past several weeks, and we could at a minimum, be looking at the start to some form of a shorter-term base by 1.3450. Thursday’s bullish close, followed by Friday’s early break back above the Thursday high, strengthens the case for the potential rebound.

Relative Performance Versus USD on Friday (As of 10:10GMT) –

1)    EURO             +0.39%
2)    SWISSE        +0.38%
3)    KIWI              +0.35%
4)    CAD               +0.27%       
5)    AUSSIE        +0.27%

6)    STERLING    -0.04%   
7)    YEN                -0.19%


Asia: With the exception of a downgrade to the UK economy from the EC, things were risk positive in Asia. Japanese CPI came in not as soft as was expected, while industrial production was firmer. In Australia, private sector credit rose by more than consensus, while in New Zealand, trade data was much stronger. Meanwhile, UK GfK consumer confidence was released and managed to show a decent improvement from the previous print. On the official circuit, Japan’s Kan was out saying that further efforts were needed to avoid deflation.

Europe: In European trade, the Euro managed to extend gains, to trigger some mild stops above 1.3600. More data out from the UK was on the whole concerning, with UK Nationwide much weaker, and Y/Y GDP also weaker than expected (M/M was a bit better). Sterling continued to underperform as a result, with an article in the Guardian not helping matters after citing a Jim Rogers opinion that Sterling is more vulnerable than the Greek affected Euro. BOE Miles has echoed other central bankers who have expressed a willingness to leave the QE door open, and there is no doubt that this possibility seems more realistic in the face of the latest barrage of Sterling negative news. Elsewhere, talk of a new Greek austerity package was well received, but there is still plenty of doubt surrounding the country’s ability to self-heal. Finally, Eurozone CPI was released and failed to influence price action after coming in as expected.

Looking ahead, US GDP (0.6% expected) and Canada current account (-8.5B expected) are due at 13:30GMT, followed by Chicago PMI (59.7 expected) at 14:45, and University of Michigan confidence (73.9 expected) at 14:55GMT. Existing home sales (0.9% expected) then cap things off at 15:00GMT. On the official circuit, Fed Evans and Tarullo are slated to speak at 12:30GMT, while Fed Dudley and Kosherlakota speak later in the day at 15:45GMT. US equity futures and commodity prices remain bid into the North American open.


GRAPHIC REWIND
 

dxy2.26


TECHS

 


EUR/USD Setbacks have stalled for now ahead of  1.3400 (61.8% fib retrace of the 2008-2009 low-highs), and although the overall structure remains bearish, the market looks as though it may be attempting to carve out a short-term base.  Thursday’s bullish doji-like close, followed by Friday’s break back above Thursday’s high, confirms short-term basing prospects and likely opens the door for some upside over the coming days back towards the 1.3800-1.3900 area, before proper consideration can be given for a bearish resumption. A break back below 1.3450 will now be required to negate additional recovery prospects and expose a more immediate downside extension to next key downside support by psychological barriers at 1.3000.

USD/JPY Currently in the process of chopping around, with the market most recently rolling over after stalling out above 92.00 in the previous week. Nevertheless, our core outlook in the pair is bullish, and we recommend looking to buy on dips back towards the recent range lows in the 88.55-89.00 area. Ultimately, only a close back under 88.55 would negate and give reason for pause.   

GBP/USD The most recent bout of bearish consolidation has been broken, with Thursday’s declines below 1.5350 opening a fresh downside extension which now eyes critical psychological barriers by 1.5000. Daily studies are however oversold, and we would prefer to recommend selling into rallies. The 10-Day SMA has more or less capped rallies over the past several days, so we would recommend looking to sell on a rally back towards the shorter-term SMA which currently comes in by 1.5500.    

USD/CHF Continues to press higher with the market now fast approaching our 1.1000 objective from a few weeks back. A major base looks to be firmly in place and any setbacks are expected to be well supported ahead of 1.0600 in favor of a bullish continuation through 1.1000 and towards 1.1500 further up.  Only back under 1.0600 would delay and give reason for pause.


FLOWS


Swiss bank decent Eur/Usd buyer. Option expiry in Aud/Usd at 0.8850. UK clearer and leveraged account bids in Eur/Gbp; some offers from technical accounts seen up ahead of 0.9000. Cross-Yen demand from various buy-side shops.
 

TRADE OF THE DAY

 tradeofday

Eur/Sek: One of the few cross currencies that are so stretched at present and with the daily RSI well below 30, we like the idea of looking to build a long position a little lower down. The market is now at its lowest levels since 2008 and is fast approaching a retest of critical longer-term former resistance now turned support by 9.6600 from November 2005. As such, we see the 9.6600 area as stalling additional setbacks at a minimum, ahead of a much needed and healthy corrective bounce, that could even develop into a more meaningful medium-term base. STRATEGY: BUY AT 9.6650 FOR AN OPEN OBJECTIVE; STOP 9.5650. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE ON FRIDAY. POSITION SIZE SHOULD BE 3X TOTAL EQUITY. 


PORTFOLIO OVERVIEW


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 has been created to track our results on a daily basis. We are pleased to announce that our model generated returns of 50% in 2009. The return on equity curve seen below has now been reset for 2010.

p&l2 

Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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