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Sterling Stands Out As Big Loser on Weighing Fundamentals

Sterling Stands Out As Big Loser on Weighing Fundamentals

2010-03-15 11:13:00
Joel Kruger, Technical Strategist





Sterling as been hit the hardest, with the pound weighed down heavily by a number of factors including; a much weaker rightmove, hung parliament, downbeat BOE Barker and ongoing concerns over the UK debt situation. Although not hit as bad, the Australian Dollar has also been one of the weaker currencies on fears of some regulatory changes in China and pressures for the Yuan to trade more properly in line with fundamentals. However, Premier Wen has been out over the weekend attempting to downplay the pressure after saying that the Yuan was not undervalued, while also being highly critical of outside pressures over China’s FX policy.

Relative Performance Versus USD on Monday (As of 11:00GMT) –

1)    CAD              +0.01%
2)    YEN               -0.17%
3)    KIWI              -0.24%
4)    SWISSIE      -0.31%       
5)    AUSSIE         -0.32%
6)    EURO            -0.48%   
7)    STERLING    -1.14%

Elsewhere, the EconFin meeting is set to go in Brussels today, and many have been speculating that a bailout deal for Greece will be announced. But both French and German ministers have come out denying such speculation. Global equities are tracking lower today, with risk aversion back on the rise as rating agency Moody’s warns that both the US and UK are at risk of losing their AAA credit ratings should the countries not be able to get their finances back in line. On the data front, New Zealand performance services was a tad firmer than the previous print, while UK rightmove house prices were significantly worse than previous. Swiss producer and import prices were weaker, and Eurozone unemployment data was a tad better than expected.

Looking ahead, Canada new motor vehicle sales (0.0% expected) are due at 12:30GMT, along with US empire manufacturing (22.0 expected). US TIC flows (47.5B expected) then follow at 13:00GMT, with industrial production (0.0% expected) capacity utilization (72.5% expected) following shortly after at 13:15GMT.  The NAHB housing market index (17 expected) caps things off later in the day at 17:00GMT. US equity futures point to a lower open, while commodities are mixed, with oil on the offer and gold slightly bid.



EUR/USD: Friday’s close above 1.3700 strengthens the case for the formation of a short-term bottom, but it is 1.3800 that now becomes the key level to watch above. The market has been unable to close above 1.3800 since early February, and failure to do so again now, could once again expose a test of the recent range lows by 1.3440. A close above 1.3800 will open additional corrective upside, while back below 1.3670 keeps downside pressures intact. In the interim, we recommend that traders remain sidelined here. 

USD/JPY: Has been very well supported on dips towards 88.00, and we look for the most recent sharp rebound to open additional upside over the coming weeks back above critical medium-term resistance at 93.75. The  latest impressive rally from 88.00 reaffirms our outlook and only a close back under 88.00 would ultimately negate and give reason for pause. 

GBP/USD: Technically, the break back above 1.5195 on Friday has triggered a major double bottom formation that would now project additional upside back towards the 1.5600 area over the coming days. Nevertheless, we are not as comfortable recommending a play of this double bottom, with daily studies having already corrected nicely from oversold levels, and the market very much locked in an intense downtrend. Instead, we recommend standing aside for now and awaiting a clearer signal.

USD/CHF: The rally has finally stalled out for now ahead of 1.0900, with the market in the process of correcting from overbought levels. However, we look for the 1.0500 area to offer itself as a solid prop for additional declines, with a medium-term higher low sought out ahead of some bullish continuation back above 1.0900 over the coming days.  The 50-Day SMA also supports, and we would not expect to see a close below this medium-term SMA. 


M&A related selling in Gbp/Usd. Eur/Chf 1.4550 barriers taken out. Buy-side shops on the offer in Eur/Usd. Leveraged accounts and CTAs selling Aud/Usd and Nzd/Usd; model accounts on the bid.


No Trade: No new recommendations at the moment and currently running open positions in Eur/Aud, Eur/Cad, and Gbp/Aud.



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.



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