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Overall Price Action Remains Quite Choppy; Profits Locked on EUR/CHF Short

Overall Price Action Remains Quite Choppy; Profits Locked on EUR/CHF Short

2010-05-21 09:12:00
Joel Kruger, Technical Strategist
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MORNING SLICES

 

 

FUNDYS
 
The Euro has managed to stage an impressive recovery out from its recent 2010/multi-year lows, and has done so even in the face of a high degree of uncertainty and heavy liquidation in global equities prices. The only seemingly logical explanation for the relative Euro strength is that there has indeed been some coordinated intervention to help curb the depreciation in the beleaguered currency. 
 
Relative Performance Versus USD on Friday (As of 8:55GMT) – 

1) AUSSIE +0.93% 
2) KIWI +0.75%
3) CAD        +0.32% 
4) STERLING +0.15%
5) EURO +0.06%
6) SWISSIE         -0.03%
7) YEN         -0.30%
 
Some of the big movers have been on the Euro/Commodity crosses, with Aussie, Kiwi and Cad absolutely obliterated in the face of this new wave of global fear. Meanwhile, some added intervention from the SNB has forced a serious jackknife reversal in the Eur/Chf cross which traded as high as nearly 6 big figures off of its early week record lows by 1.4000 (the cross has since come back under pressure in Friday trade). The Yen crosses have also been hurting on the risk aversion theme, although we have seen some mild recovery into Friday. 
 
US Secretary Geithner has scheduled a trip to the UK and Germany next week to discuss the current crisis, which further strengthens and reaffirms the likelihood of coordinated intervention. Elsewhere, Japanese FinMin Kan has been on the wires saying that FX rates should be set by markets even though it is undesirable to see such a strong Yen. With all of the moves in the markets of late, it is no surprise to here some reserve talk, with India’s central bank saying that the Euro portion of their reserves is insignificant and that the USD remains the major component of their reserves. Finally, the US Senate has officially approved the Wall Street reform bill which greenlights a massive overhaul of financial regulation; including strengthening oversight of derivatives trading
 
Moving on to the economic calendar, the Bank of Japan has come out and left its call rate unanimously unchanged at 0.10% as widely expected, and the news has hardly factored into price action. In European trade, German PMI came in softer, while German IFO was on the whole a tad weaker than expected. Meanwhile Eurozone PMIs were also slightly below consensus. A batch of UK data has also been released and is on the whole quite solid, with the highlight coming from a much stronger than expected total business investments reading. 
 
Looking ahead, to North American trade, it is all about Canada, with CPI (0.2% expected) initially due out at 11:00GMT, followed by retail sales (0.1% expected) at 12:30GMT. On the official circuit, Fed Dudley is slated to speak at 23:00GMT. US equity futures are showing some signs of life following Thursday’s concerning session, while commodities continue to track lower. 
 
GRAPHIC REWIND
dxy5.21

TECHS
  
EUR/USD: Although the market has bounced quite significantly out from the recent 1.2145 2010/multi-year lows, into the 1.2600’s thus far, the overall trend remains intensely bearish and any rallies are still classed as corrective. Look for a lower top to now carve out below 1.3100, ahead of the next fresh downside extension back towards and eventually through 1.2145. Below 1.2145 exposes psychological barriers at 1.2000 further down. Ultimately, only back above 1.3100 would negate bearish outlook and give reason for pause. 
 
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, the market has entered a period of consolidation to allow for daily studies to unwind, and we would not rule out the possibility for a short-term corrective bounce back towards 1.4700-1.4900 before bearish trend resumption. 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. In the interim, short-term support comes in by 1.1430 and a break and close below will be required to trigger the onset of a short-term corrective pullback. 
 
 
FLOWS
 
Bids in Gbp/Usd below 1.4400; offers above 1.4500. Talk of gold profits being booked to offset other buy-side losses. UK clearer and US prime name on the offer in Eur/Usd. More official bids touted in Eur/Chf. Model funds continue to exit long Aud/Usd positions. Some leveraged names looking to buy cross-yen on dips. 
 
TRADE OF THE DAY
tradeofday2
 
EUR/CHF: Fortunate to isolate an ideal entry this morning with a short trade established just a few ticks off of the multi-day high, and allowing us to already lock in profits. The cross had been rallying sharply out from its 1.4000 record lows, pushing up nearly 6 big figures to leave hourly studies well overbought and parabolic. As such, the probability for a short-term pullback at a minimum was highly probable and the position was taken in anticipation of said correction. Fundamentally, the moves were driven by a massive amount of coordinated central bank intervention from the SNB and ECB, and while central banks are often successful in manipulating short-term movements, ultimately the markets will move in the direction that they desire, which in this case, continues to suggest a lower cross rate. POSITION: SHORT FROM 1.4570 FOR AN OPEN OBJECTIVE; REVISED STOP AT 1.4490. 
 
 
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 
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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