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Euro Well Offered in Lightened Overseas Holiday Trade

Euro Well Offered in Lightened Overseas Holiday Trade

2010-05-03 11:16:00
Joel Kruger, Technical Strategist
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MORNING SLICES

 

FUNDYS
 
Also seen weighing on sentiment has been the Goldman Sachs criminal probe news, which sent stocks into a tailspin on Friday. Goldman Sachs stock was down some 10%.The famed investment giant could however be poised for some recovery today after the FT has reported that the firm intends to make some changes to its practices with institutional clients. Warren Buffet has also come out in support of Goldman, saying that he “loves” his $5B stake in the firm. Currencies have come under pressure across the board on Monday, with the Euro and Swissie leading the declines on the back of these developments. 
 
Relative Performance Versus USD on Monday (As of 11:00GMT) – 

1) CAD       +0.63% 
2) KIWI +0.59%
3) AUSSIE +0.54% 
4) STERLING -0.42%
5) YEN          -0.35%
6) EURO -0.17%
7) SWISSIE        -0.23%
 
Price action should however be taken with a grain of salt, as Japanese, Chinese, and other Asian markets are closed for holiday. European trade is also expected to be considerably thinner given the UK bank holiday. Australian and New Zealand markets were not closed on Monday, and both local currencies have benefited nicely from some encouraging economic data. Australian house prices showed another impressive gain, while inflation momentum picked up to help add to the likelihood of an RBA rate hike on Tuesday. Meanwhile, New Zealand commodity export prices were solid and Kiwi has actually managed to stay marginally bid on the day against the buck, despite all other major currencies tracking lower. 
 
European trade saw some fairly stable price action with the commodity bloc currencies continuing to outperform and track higher on the day against the buck, while the other major currencies lagged. Data in European trade was all about PMIs, with all economies posting some impressive numbers. Stronger Swedish and Norwegian PMIs helped to produce more favorable Scandi yield differentials, while Eurozone and Swiss PMIs were also healthy. One other important development on Monday was the announcement of yet another Chinese reserve requirement rate hike
 
Looking ahead, US personal income (0.3% expected) and personal spending (0.7% expected) are due at 12:30GMT, along with personal consumption (0.0% expected). Construction spending (-0.5% expected) and ISM manufacturing (59.0 expected) then follow at 14:00GMT. Domestic vehicle (8.9M expected) and total vehicle (11.4M expected) are due later in the day at 21:00GMT. US equity futures are tracking higher, while commodities are also moderately bid ahead of the North American open.
 
GRAPHIC REWIND
dxy5.3

TECHS
  
EUR/USD: Continues to extend declines to fresh 2010 lows, now into the 1.3100’s, with the market eyeing a retest of next key psychological barriers by 1.3000 over the coming sessions.  While 1.3000 offers itself as some formidable psychological support, 1.2885 represents the low from April 2009, so we look for a test of the 1.2885-1.3000 area over the coming days. Also coming in by 1.3000 is a key 78.6% fib retrace off of the major 2008-2009 move. Look for any inter-day rallies to now be well capped ahead of 1.3400, while ultimately, only a break back above 1.3815 gives reason for pause. Monday’s bearish outside day price action helps to reaffirm negative outlook. 
 
USD/JPY: Setbacks have been very well supported on a close basis above the 92.00 handle, which offered itself as some solid former resistance now turned support, and we now look for a higher low by 91.60 ahead of some fresh upside over the coming days back through the current 2010 high by 94.75. Only back under 91.60 would negate and give reason for pause. In the interim, look for any inter-day setbacks to be well supported ahead of 93.00. 
 
GBP/USD: Rallies have stalled out with the market failing to break back above the 1.5500 range highs and rolling back over in favor of a bearish continuation.  Initial support by 1.5190 has been taken out and next key support comes in by 1.5130. Look for a close below 1.5130 to accelerate declines and potentially warn of a retest of the 2010 lows by 1.4780 over the coming days. Any intraday rallies are expected to be well capped ahead of 1.5400.      
 
USD/CHF: The overall structure is constructive with a medium-term higher low now sought out by 1.0435 in favor of the next major upside extension beyond 1.0925 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 on a close basis. So long as the market holds above this SMA on a close basis, we recommend looking for opportunities to be long. Short-term support now comes in by 1.0700. It is also worth noting that the 100-Day SMA has recently crossed up above the 200-Day SMA for the first time since September 2008, which is another bullish signal. 
 
 
FLOWS
 
Model fund demand for Aud/Usd. Short-term spec account on the offer in Eur/Usd and Gbp/Usd. Central bank demand for Eur/Chf on dips toward 1.4300. Local accounts buying Usd/Cad
 
TRADE OF THE DAY
tradeofday2
 
Eur/Nzd: Has just managed to post yet another 2010 low on Monday, after the market took out Friday’s 1.8135 bottom. However, we are somewhat skeptical of the move given Monday’s lightened trade, and with daily and weekly studies already so well oversold, we like the idea of playing the long trade in anticipation of a long overdue corrective bounce. Although Friday’s bullish reversal candle has been negated today, we do not discredit the formation, and instead take it as a warning sign for a near-term reversal. We would not at all be shocked to see a situation in which the drop below Friday’s low was no more than a game of stop-hunting ahead of the major push higher. Monday’s ATR has also already been exceeded to suggest that additional declines should be limited today. Our short Nzd/Usd trade from Friday was exited at break-even, and we like the idea of rolling our bearish Kiwi bias against the Euro from here. POSITION: LONG @1.8125 FOR AN OPEN OBJECTIVE; STOP 1.7975. POSITION SIZE SHOULD BE 3X TOTAL 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&l2
 
 
 

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

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