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Currencies Chopping Around and Trade Mixed on Quarter End Volatility

Currencies Chopping Around and Trade Mixed on Quarter End Volatility

2010-03-31 10:41:00
Joel Kruger, Technical Strategist



The Yen and antipodean currencies have been well offered and trade lower on the day, while Swissie, Cad, Euro and Sterling all track higher. The buck had been initially well bid across the board in Asian trade, but started to come under pressure against the mentioned major currencies in Europe. Some solid unemployment data out from Germany and the Eurozone, opened a rally in the Euro, while a better than expected Swiss KOF leading indicator helped to force some renewed Swissie buying, with the Eur/Chf cross taking out stops back below 1.4300. The Yen was pretty much the one constant throughout the day, with the single currency steadily well offered. Usd/Jpy continued to focus on a retest and potential break of critical resistance by the 2010 highs at 93.78.

Relative Performance Versus USD on Wednesday (As of 10:35GMT) –

1)    SWISSIE        +0.52%
2)    STERLING     +0.49%
3)    EURO             +0.37%
4)    CAD                +0.35%
5)    KIWI               -0.20%
6)    AUSSIE          -0.37%   
7)    YEN                 -0.66%

The relative underperformance in the Australian Dollar, despite a recovery in the other major currencies was mostly attributed to a scaling back of interest rate expectations following a batch of data, including an abysmal retail sales print and discouraging building approvals that left market participants with a more unsettling feel. Meanwhile, in New Zealand, business confidence showed deterioration from the previous set of data. Other data released on Wednesday included Japan wage earnings which continued to slip, extending the data series losing streak to 21 months, the worst in six years. Finally, Fed Fisher was on the wires with an upbeat outlook for the economy, but also stressed that the thought of a rate hike at this point was not on the front burner.

Despite the gains in both the Euro and Swissie into the North American open, there were however some potentially negative developments overnight, which should remain at the back of traders’ minds for the remainder of the day. With regard to the Euro, Moody’s was out warning that EU countries will need brutal budget adjustments in the coming years to avoid debt explosions, while S&P was also out with a report outlining the risks for a fragile recovery in the EMU countries. In reference to the Swissie, SNB newcomer Danthine was out reiterating the central bank’s well known policy stance on the Franc, after saying that the bank would not allow excessive appreciation in the currency and would be prepared to act against an extreme rise at any time.

Looking ahead, MBA mortgage applications  are due at 11:00GMT, followed by ADP unemployment (40k expected) at 12:15GMT. Canada GDP (0.5% expected),is then scheduled for release at 12:30GMT, with Chicago PMI (61.0 expected) following shortly after at 13:45GMT. US factory orders (0.5% expected) are then out at 14:00GMT, with crude oil inventories capping things off at 14:30GMT. On the official circuit, Fed Lockhart is slated to speak on employment prospects in Connecticut at 16:30GMT.  Keeping up with the theme of the markets being all over the place on the final day of Q1, US equity futures point to a lower open, while commodities are tracking higher. 

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 latest drop, 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 1.3535, with a break to potentially open 1.3815 further up. However, a bearish outside day on Tuesday should be encouraging for bears and could now open acceleration back towards 1.3270.

USD/JPY Has been very well supported on dips, and we look for the most recent sharp rebound to accelerate gains back above critical medium-term resistance at 93.75. The impressive rally beyond 93.00 reaffirms our outlook with the market now threatening a push to fresh 2010 highs as well. Above 93.75 exposes 97.80 further up. Look for any setbacks to be well supported ahead of 91.50.  

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. Key short-term resistance comes in by 1.5200, 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. As such, we look for a near-term topside failure and break back below 1.4970 to put the pressure back on the downside and re-open a test of critical support by 1.4780.

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.


M&A related bids on dips in Aud/Usd. Macro accounts on the bid in Eur/Chf below 1.4300; shorter term names selling. Macro names also on the bid in Gbp/Usd. German names, UK clearer, French bank, systems, and some Asians central banks have all been buying Eur/Usd, with the currency also bid on reported heavy fix related selling in the USD.

                                                                          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 despite some setbacks back below 1.4300 today.

                                                                     PORTFOLIO OVERVIEW

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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 instructor@dailyfx.com and you will be added to the "distribution" list.

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