Sterling Outperforms While Buck Falters Across the Board
The Pound is the big winner on the day and has found some relative strength on the back of some much stronger than expected employment data. The Bank of England Minutes has also been released but has failed to factor into price action after being overshadowed by the encouraging employment data.
Relative Performance Versus USD on Wednesday (As of 10:45GMT) –
1) STERLING +0.74%
2) AUSSIE +0.53%
3) KIWI +0.52%
4) CAD +0.26%
5) SWISSIE +0.20%
6) EURO +0.15%
7) YEN -0.33%
Elsewhere, the Bank of Japan has come out in Asian trade leaving the call rate unanimously unchanged at 0.10%, but has caught market participants off guard after adopting additional easing measures through the expansion (doubling) of last year’s money supply operation. Other data released on Wednesday includes, Australia’s leading index of economic activity; at its highest levels in over a year, a better than expected Japan tertiary activity index, and some slightly softer Eurozone labor costs.
Despite some stronger data down under, the Aussie has been somewhat weighed down (albeit marginally) by some dovish comments from RBA watcher McRann, and some less than hawkish remarks from RBA Debelle who says that the upside to tightening is limited.
Finally, China headlines will not go away, with Treasury Secretary Geithner on the wires saying that China will ultimately decide that it is their interest to move to a more flexible exchange rate and that the US has not yet judged China as a currency manipulator. Meanwhile, Chinese officials have been deflecting any pressures on currency revaluation by saying that the Cny exchange rate is not the source of trade imbalances.
Looking ahead, US MBA mortgage applications are due at 11:00GMT, followed by Canada wholesale sales (0.5% expected) and US producer prices (-0.2% expected) at 12:30GMT. On the official circuit, Fed Chair Bernanke testifies at a House hearing on Bank supervision at 18:00GMT, with Fed Fisher speaking later in the day at 20:30GMT in front of a panel on the topic of learning from the crisis. US equity futures point to a firmer open, while commodities are also well bid led by oil.
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. 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 and potentially looking to sell into the current strength.
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.
EU supranational on the bid in Gbp/Usd. French bank buying Aud/Usd. German bank selling Eur/Aud. Japanese investor demand for Aud/Jpy. Expiries today in Usd/Jpy at 89.00, 90.00, 90.50, 91.00, and 91.50.
TRADE OF THE DAY
Eur/Chf: The cross has fallen off of a cliff over the past few weeks with the market in a freefall and now looking to test critical psychological barriers by 1.4500. Weekly and daily studies are now highly oversold and the market is in desperate need for some corrective relief. Previous tests of support by 1.4500 have often been met with some very solid buying, and we would look for this barrier to once again act as a formidable support on dips. While we would not rule out the possibility for a break below these barriers on Wednesday, we will happily wait to buy the dip below the figure in anticipation of a major bounce. STRATEGY: BUY @1.4490 FOR AN OPEN OBJECTIVE; STOP 1.4420. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON WEDNESDAY. POSITION SIZE SHOULD BE 3X EQUITY.
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
If you wish to receive Joel's reports in a more timely fashion, e-mail email@example.com and you will be added to the "distribution" list.
If you wish to discus this topic or any other feel free to visit our Forum page
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.