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Currencies Remain Under Pressure Despite Intervention Efforts

Currencies Remain Under Pressure Despite Intervention Efforts

2010-05-24 10:29:00
Joel Kruger, Technical Strategist



Most recently, we have heard rumors of even Australian official activity following the latest intense slide in the local currency. Overall, it is has been the Euro that has led the sell-off over the past few weeks, with the commodity currencies only recently playing catch-up and starting to show some relative weakness. 
Relative Performance Versus USD on Monday (As of 10:25GMT) – 

1) YEN         -0.08% 
2) CAD        -0.23%
3) STERLING -0.39% 
4) AUSSIE -0.54%
5) SWISSIE         -0.73%
6) KIWI -0.97%
7) EURO -1.46%
The crisis in the Eurozone is still very much with us right now, and comments from doom and gloomer Nouriel Roubini over the weekend have not helped. The famed NYU professor has said that Greece’s crisis is “just the tip of the iceberg” and that the prospects of a breakdown of the EMU still exists. Meanwhile, the news that the Spanish central bank was forced to takeover a small regional bank over the weekend, has not helped matters. 
Nevertheless, there have been some areas of silver lining, with Australian new motor vehicle sales rising impressively for the first time in four months, while Asian and European equities have been holding relatively steady on the back of a positive close in US equities on Friday. Elsewhere, Treasury Secretary Geithner is in China and is on the wires welcoming China’s stance on Yuan reform. Geithner reiterates that a market driven Yuan is important for China’s recovery. 
Most of the attention in the data empty European session has been given to UK Chancellor of the Exchequer Osborne’s unveiling of the GBP6B in spending cuts. On the topic of currencies, Osborne has gone on to say that a stable Euro is in Britain’s interest. Meanwhile BOE Miles has said that the Eurozone problems pose a risk to the UK economy. 
Looking ahead, the Chicago Fed national activity index is due at 12:30GMT, followed by existing home sales (5.6% expected) at 14:00GMT. US futures are pointing to a lower open, while commodities are decently mixed with oil slightly lower while gold is finding a bid tone.  
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. 
Stops below 1.2340 in Eur/Usd. Official bids in Eur/Chf on dips. Local accounts on the offer in Usd/Cad; CTA demand. Japanese investment buying in Usd/Jpy. Swiss bank supply in Gbp/Usd. 
No Trade: Nothing new just yet and we will continue to watch and look for any opportunities that may materialize over the coming hours. Usd/Chf looks to be the most interesting to us right now and we may look to fade any strength above 1.1600 on Monday. Will send an email if we do.  
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 
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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Read more: DailyFX - EUR/USD Classical 05.21 http://www.dailyfx.com/forex/technical/home/analysis/eur-usd/2010-05-21-0822-EUR_USD_Classical_05_21.html#ixzz0ooqKEmQZ

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