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Coordinated Intervention Efforts Still Falling on Deaf Ears

Coordinated Intervention Efforts Still Falling on Deaf Ears

2010-05-20 11:11:00
Joel Kruger, Technical Strategist
Wednesday’s session of trade also saw some intervention from the SNB, which ultimately fuelled some massive gains in the Eur/Chf cross, after the market could not fight through the SNB’s 1.4000 defense level.  
Relative Performance Versus USD on Thursday (As of 10:45GMT) – 

1) YEN         +0.63% 
2) SWISSE  +0.07%
3) EURO -0.64% 
4) KIWI -0.72%
5) STERLING -0.75%
6) CAD         -1.14%
7) AUSSIE -2.34%
The commodity currencies have been playing catch-up and have been absolutely decimated against the Euro. Aussie and Kiwi have been hit the hardest, while Cad is not too far behind. The latest round of global risk aversion and market uncertainty has proven to be too difficult to ignore, even for the higher yielding and more stable commodity bloc, which has suffered accordingly. The news from the RBA Watchers that the RBA will likely not hike rates in June, has also been seen weighing on Aussies. 
On the data front, Japanese GDP has come in impressive with the fastest quarterly growth since Q2 2009, while portfolio flows show that Japanese investors have more confidence in investing abroad. However, Japanese FinMin Kan has come out mitigating the latest GDP data, saying that it is still too early to call the current recovery as self sustaining. In New Zealand, the Budget has come out and has been somewhat well received after S&P gave its thumbs up, saying that the budget was consistent with the country’s current rating. However, there was some room for concern after Fitch left New Zealand’s negative outlook on its sovereign rating intact. Meanwhile, European trade has produced an as expected UK retail sales and a much weaker Swiss economic sentiment. 
Elsewhere, EU Juncker has been on the wires saying that the recent moves in the Euro have been irrational and that they in no way reflect the ECB’s recent measures. Juncker also repeats an earlier line that he is more concerned with the rapid depreciation in the single currency rather than the rate itself. Nevertheless, Juncker maintains that intervention is not necessary, while French FinMin Lagarde attempts to calm after saying there is no danger for the Euro. Finally, Bank of England Posen has been out commending the recent steps taken by the EU, but does feel that the Euro missed its opportunity to become a global currency. 
Looking ahead, Canada leading indicators (0.7% expected) are due at 12:30GMT along with US initial jobless claims (440k expected) and continuing claims (4605k expected). The RPX composite is then out at 13:00GMT, followed by leading indicators (0.2% expected) and the Philly Fed (21.5 expected) at 14:00GMT. US equity futures point to a lower open, while commodities are also trading in the red. 

EUR/USD: The sharp declines continue with the market now easily taking out next key support in the form of the 2009 lows by 1.2330, to 1.2165 thus far. From here, next key support comes in by psychological barriers at 1.2000, with the market now trading in territory not seen since 2006. Below 1.2000 then exposes a drop into the platform base from 2006 in the 1.1600’s. It is however worth noting that technical studies, both daily and weekly, are now highly oversold and we can not rule out the potential for a meaningful corrective bounce before considering bearish resumption. Key short-term resistance comes in by 1.2575, with a break above to potentially trigger said correction. 
USD/JPY: The whipsaw price action from violent trade in early May has delayed our outlook but certainly does not change our overly constructive bias. The medium-term higher low from early March just over 88.00 remains intact, with the market stalling out ahead of the level, and we now look for a push higher from here back towards and through next key topside barriers by 95.00. Only a break back below 88.00 would negate and give reason for pause. 
GBP/USD: The market has finally taken out the key 2010 lows by 1.4780 to confirm a fresh medium-term lower top by 1.5500 and open the next major downside extension towards critical psychological barriers by 1.4000 over the coming days. At this point however, with daily studies looking stretched, we would not rule out the possibility for a short-term corrective bounce back towards 1.4700-1.4900 to allow for daily studies to correct from oversold. It is worth noting that the 78.6% fib retracement off of the major 2009, 1.3500-1.7050 move, has been tested in the 1.4200’s, and this area could provide the necessary support to help trigger a bounce.  
USD/CHF: The overall outlook remains highly constructive and while daily studies do not rule out the possibility for some form a pullback to allow for technicals to unwind, any setbacks should be very well supported ahead of 1.1200, in favor of an eventual push towards 1.2000. 
Asian central bank demand for Eur/Usd; unofficial European central bank demand. Leveraged accounts selling Gbp/Usd. Model bids in Eur/Gbp. Model accounts exiting long Aud/Usd positions. Local names on the bid in Usd/Cad. Real money demand for Usd/Jpy. 
EUR/USD: It looks as though we are beginning to see the formation of a short-term base, and although trade remains extremely choppy, we now expect Wednesday’s 1.2145, 2010 and multi-year low to hold for a little while, in favor of a more significant corrective upside extension. Monday’s bullish hammer offered a false signal, with the markets reversing course sharply to new lows on Tuesday and Wednesday. But any downside follow through has proved fleeting, with the market quickly bouncing and suggesting that it indeed wants to go higher before considering the next major downside move. It is not uncommon to see such an obvious bullish reversal signal like the one we had seen on Monday, be negated, simply because it so obvious, before the market finally decides to actually follow through in the direction of the initial signal. As such, we like the idea of taking advantage of dips on Thursday back towards the 61.8% fib retracement off of the recent moves in anticipation of said correction. STRATEGY: BUY @1.2260 FOR AN OPEN OBJECTIVE; STOP 1.2135. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON THURSDAY. 
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 
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