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Buck Still Well Bid; UK Inflation Data Soft; Euro/Swiss Eyes Fresh All-Time Lows

Buck Still Well Bid; UK Inflation Data Soft; Euro/Swiss Eyes Fresh All-Time Lows

2010-03-23 11:30:00
Joel Kruger, Technical Strategist
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MORNING SLICES

SLICES LOGO

 

FUNDYS


However currencies have come back under pressure into the North American open. The Greek bailout topic remains at the forefront of investor minds and many are now speculating as to whether or not Germany will in fact move to rescue Greece. Risk appetite had been weighed down early Monday on the back of some hard criticism from Greece’s deputy PM that Germany’s Merkel was allowing the local banks to make bets against Greece with the hopes for a weaker Euro. However, reassurances from ECB President Trichet that Greece would not be leaving the EMU, some upbeat comments from China’s Wen on US-China relations, and the passage of the Obama healthcare plan were all seen reinfusing investor appetite and helping to bolster the bid in currencies. The Euro has been showing some relative weakness in Tuesday trade thus far with many attributing the selling to the news that decisions on financial aid for Greece will not be on the agenda at the upcoming EU Summit.

Relative Performance Versus USD on Tuesday (As of 12:00GMT) –

1)    CAD              -0.14%
2)    SWISSIE      -0.17%
3)    KIWI              -0.23%
4)    YEN                -0.23%       
5)    AUSSIE         -0.38%
6)    EURO            -0.39%   
7)    STERLING    -0.75%


Elsewhere, the Bank of Japan Minutes were released and was less than clear on the central bank’s desire to adopt a more accommodative easing policy as had been vocalized by many officials in recent days. Nevertheless, the release failed to materially influence price action. The New Zealand Dollar has found some fresh bids over the past few hours after local think tank NZIER announced that it expects the local economy to grow at a faster pace. On the topic of reserve currencies, Fed Lockhart has come out with a rather neutral stance on the USD after saying that while the US has had the privilege of being the reserve currency of choice, this should not be taken as something permanent.

Fed Evans has also been out in recent hours with his outlook on the economy, saying that he expects the US economy to grow by 3-3.5% this year but also warns that the impact of the stimulus will ease in the second of 2010. Evans has come out on the dovish side after also saying that current market conditions still warrant substantial accommodation. Meanwhile, China’s Wen has been going to great efforts to try and defuse the possibility of a currency war as more pressure builds in the US on citing China as a currency manipulator.  

Although all major currencies are down against the buck thus far on the day, the most interesting price action in European trade has come through Sterling and Swissie. Cable has come under some significant pressure following the softer than expected inflation print, with the market taking out stops below 1.5000, while the Swiss Franc continues to get attention, with the relative outperformance against the Euro leaving the cross rate just shy of its all-time lows from 2008.

Eur/Chf has come under some more pressure on Tuesday even following comments from SNB Hildebrand that the SNB will act decisively to counter an excessive rise in the Franc. It seems as though market participants are keen on testing the central bank which has failed to really do any damage with their intervention threats. Perhaps comments from Hildebrand that price stability is not in danger in the short-term have also helped to generate some fresh Swissie bids.

Looking ahead, Canada leading indicators (0.8% expected) kick things off at 12:30GMT, followed by US existing home sales (4.98M expected), the US house price index (-0.9% expected) and Richmond Fed manufacturing all at 14:00GMT. On the official circuit, Fed Yellen speaks in California at 19:35GMT. US equity futures point to a marginally higher open, while commodities are mixed with oil mildly bid and gold a touch lower.

 

GRAPHIC REWIND

dxy3.23

 
TECHS


EUR/USD Remains locked in a multi-day consolidation largely defined between 1.3500 and 1.3700 with the extreme high-lows set by 1.3840 and 1.3435 respectively. It is very difficult to call where we go from here, with the latest topside rejection above 1.3800 suggesting a bearish consolidation, while Monday’s failure to break to fresh 2010 lows has now set up a bullish daily close and potential push back towards the range highs. Ultimately, we retain a bearish bias and see an eventual break below 1.3435 exposing the next major downside extension to 1.3000, but at this time we recommend that traders remain sidelined and wait for a clearer shorter-term signal. 

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.  Consolidation over the past several days leaves us eying shorter-term range support by 89.60, and any intraday setbacks are expected to be well supported ahead of this level. Back above 90.80 should accelerate towards 92.15 which guards against 93.75.

GBP/USD The market looks to be in the process of a bearish consolidation, with an eventual break below 1.4780 to confirm and open the next major downside extension. The 10-Day SMA has been below the 20-Day SMA for a good portion of 2010, and with the shorter-term SMA now kissing the 20-Day, we could once again be on the verge of another major decline. A clear break of the 10-Day SMA back above the 20-Day would however delay outlook and potentially warn of some bullish price action back towards 1.5375. For now, we remain sidelined.

USD/CHF The overall structure is constructive with a medium-term higher low now sought out by 1.0500 in favor of the next major upside extension beyond 1.0900 and towards 1.1500 further up. Ultimately, it is the 200-Day SMA that we use as our gauge for direction, with the longer-term SMA, which comes in just under 1.0500, expected to continue to prop setbacks. So long as the market holds above this SMA, we recommend looking for opportunities to be long. 


FLOWS


Demand for Gbp/Jpy in the 134.00 area. Japanese margin accounts bidding Aud/Jpy. Model funds on the offer in Eur/Usd and Eur/Jpy; Middle Eastern and Russian bids in Eur/Usd. Vanilla expiries at 0.9150 in Aus/Usd. Central bank and real money selling of Gbp/Usd.
 


TRADE OF THE DAY

tradeofday

Eur/Chf: Although we were stopped from this trade in the previous week, we are inclined to take another shot should the market break to fresh all-time lows on Tuesday. Monday’s setbacks have stalled just shy of the all-time lows at 1.4300 from 2008, ahead of the latest minor bounce. While the overall outlook remains highly bearish, we can not ignore a daily RSI which has remarkably dipped below 10. Daily, weekly and monthly studies are all showing oversold and as such, we see the greater risk for a significant bounce back towards 1.4500 at a minimum, before even considering renewed weakness and bear trend resumption below 1.4300. Look for a break to fresh all-time lows today below 1.4300 ahead of a sharp rally to signal the onset of a major corrective bounce. Ultimately, with daily studies so violently oversold, we do not see a scenario where the elastic can be stretched much further. STRATEGY: BUY @1.4275 FOR AN OPEN OBJECTIVE; STOP 1.4225. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON TUESDAY. POSITION SIZE SHOULD BE 5X 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&l
 

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