Currenncy Performance on Monday Reflective of Yield Differentials; Aussie Outperforms While Yen Lags
The interesting thing is that currencies look to be reverting back to traditional correlations, with the better bid commodity currencies at the top of the performance chart, and more importantly, the lower yielding, safe haven currencies, at the bottom. While it is no surprise to see the Yen underperforming, it certainly is a bit of a surprise to see that the Swissie is the second weakest currency on the day. This follows a prolonged period of some relative Swissie strength that had the Eur/Chf cross dropping to record lows over the past few days. However, Eur/Chf has managed to find some more bids on Monday with the cross rate trying to establish back above 1.4300.
Relative Performance Versus USD on Monday (As of 10:15GMT) –
1) AUSSIE +1.00%
2) KIWI +0.80%
3) CAD +0.60%
4) EURO +0.57%
5) STERLING +0.50%
6) SWISSIE +0.41%
7) YEN -0.01%
The Euro is the next best bid major currency behind the commodity bloc and many are attributing the strength in the single currency to the favorable response to the official Greek restructuring plan. ECB Weber and Nowotny have also helped to keep the single currency propped following some upbeat comments over the weekend with respect to their outlooks for the local economy. However, gains were somewhat tempered around the European open on the news that of bomb explosions at subway stations in Russia.
Elsewhere, Sterling had been initially weighed down in Asian trade, with a weekend FT report generating some negative attention after it highlighted that many UK based hedge funds had made hundreds of millions of pounds betting against the Pound this year. However the Pound did manage to mount a solid recovery in Europe on some broadly in line data releases. Eurozone sentiment and confidence indicators were also released and came in more or less within consensus.
Also on the data front, Japanese retail sales came in stronger than expected, while Australian HIA new home sales failed to materially weigh on the Aussie after showing a significant drop from positive into negative territory from the previous print. We had already been seeing some relative underperformance in the NOK in the previous week, and it seems as though it the SEK’s turn this week, with the single currency getting hit hard following today’s much weaker retail sales print.
Looking ahead, US personal consumption (0.1% expected), personal spending (0.3% expected) and personal income (0.1% expected) data is due at 12:30GMT, followed by Dallas Fed manufacturing (0.4% expected) at 14:30GMT. US equity futures are looking healthy and point to a firmer open, while commodities also track higher, led by oil.
EUR/USD Has finally broken down below the multi-day consolidation lows (fresh 2010 low) to likely confirm a bearish continuation and open the next major downside extension towards key psychological barriers by 1.3000 over the coming days. Daily studies have had time to unwind from oversold levels following the major drop in January and February, and there is plenty of room for studies to track lower which is supportive of the prospects for continued weakness. In the interim, key short-term resistance comes in by 1.3570, with a break to potentially open 1.3815 further up. However, we do not see gains extending much beyond 1.3570 and would recommend looking for opportunities to sell rallies into this level.
USD/JPY Has been very well supported on dips, and we look for the most recent sharp rebound to open additional upside over the coming days back above critical medium-term resistance at 93.75. The latest impressive rally from last Wednesday/Thursday reaffirms our outlook with the market establishing back above the 200-Day SMA for the first time since August 2009. Look for any intraday setbacks to now be well supported in the 91.00 area.
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 (slightly above), we could once again be on the verge of another major decline. Key short-term resistance comes in by 1.5115, with a break back above this level required to take the immediate pressure off of the downside. Ultimately however, only back above 1.5400 would force a shift in the structure.
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. Any intraday setbacks should be well supported in the 1.0550-1.0600 area.
Japanese year end related Yen demand along with additional Yen bids on the Dai-Ichi Life IPO. Aussie demand from buy-siders, retail accounts and a German name. Asian central bank and momentum names on the bid in Gbp/Usd. Swiss accounts heavy buyers of Eur/Usd; Eastern European and US prime name on the offer.
TRADE OF THE DAY
No Trade: Currently holding a number of open positions and no new set-ups presenting right now. We like what we are seeing in our Eur/Commodity cross long positions and could be finally seeing a base. Eur/Chf is also looking more promising and trades in the money.
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