USD/CAD Buy Recommendation Issued @0.9755 for Thursday
While it is hard to find any real exciting things to write about with currencies still broadly locked in some consolidation, it was interesting to see each of the major currencies basically do their own thing on Wednesday and reacting for its own specific reasons. The Euro was seen higher on mixed US data, and a Fed still retaining an overall accommodative policy outlook, while the Franc was much higher on geopolitical risks and some rather hawkish comments from the SNB. Meanwhile, Sterling was a relative underperformer with the market never really being able to establish a meaningful recovery following the weaker job data and less hawkish quarterly inflation report.
Relative Performance Versus USD Thursday (As of 12:30GMT)
However, it is worth noting that the revision by UK banks for the timing of the first rate hike to May from November, did help to buoy additional declines in the Pound, while hawkish comments from BOE Sentance on Thursday helped to generate fresh bids. Sentance has been quite critical of his central bank and feels that they are underestimating longer-term inflationary threats. The Yen was seen relatively unchanged on corporate offers and a barrier defense by 84.00. On the commodity front, the Australian Dollar managed to shrug off Wednesday’s news of potential Moody’s downgrades to local banks, and found some renewed bids back above parity on talk of flows relating to flood insurance claims.
Finally, the Canadian Dollar put in an impressive performance to trade back near multi-week highs against the buck, with a rebound in oil prices helping to drive the strength. We have actually issued a buy recommendation in USD/CAD (see below) as we feel the relative strength in the Canadian Dollar is not sustainable at current levels. That being said, we are also aware of the fact that our in-house speculative sentiment index shows retail traders dramatically long USD/CAD at a ratio of nearly 10:1. As such, we will only look to enter the position in the event of a sharp drop in the pair on Thursday below 0.9800 which should clear out a good deal of these longs and make the trade much more attractive.
On the data front, European current account and construction output failed to factor into price action, while Swiss ZEW and UK CBI trends total orders showed improvement from their previous readings. Looking ahead, US CPI (0.3% expected) highlights the North American calendar at 13:30GMT, with US initial jobless claims (403k expected), continuing claims (3895k expected), and Canada wholesale sales also due at the same time. Eurozone consumer confidence (-11.0 expected) is out at 15:00GMT, with US leading indicators (0.3% expected) and the Philly Fed (21.0 expected) also out at the same time. On the official circuit, Fed Evans speaks on the topic of the economy at 17:30GMT. US equity futures are tracking mildly lower, while commodities are moving in a different directions with gold slightly higher and oil a bit lower.
EUR/USD:The market looks to be in the process of seeking out a fresh lower top below 1.3745 ahead of the next downside extension towards the measured move objective off of a head & shoulders top formation which comes in by 1.3300. Look for confirmation of a fresh lower top on a break back below 1.3425. As such, we like the idea of fading rallies towards 1.3700, with only a break back above 1.3745 negating short-term outlook and giving reason for pause.
USD/JPY: The market continues to remain extremely well bid, with the latest surge back above 83.00 really encouraging longer-term recovery prospects and opening the door for a potential break of key topside resistance by 84.50 over the coming days. Longer-term cyclical studies certainly suggest that the market could be poised for a major bullish reversal and we would look for a break and weekly close back above 84.50 to help confirm outlook. Any dips from here should be well supported ahead of 82.50, while only a break back below 82.00 would concern.
GBP/USD: Our short-term outlook still remains net bearish with the market rally on Wednesday stalling out by the 61.8% fib retrace off of the 1.6280-1.5960 move, and reversing sharply to put in a bearish outside day. Still, we do not recommend any positions just yet and would look for confirmation on a break back below 1.5960 over the coming sessions. A close back above 1.6185 would give reason for concern and negate outlook.
USD/CHF: The market has been in the process of pulling back after stalling out ahead of key short-term resistance by 0.9785 in the previous week. Still we see any additional declines well propped above 0.9500 on a close basis and look for the formation of a fresh higher low ahead of the next major upside extension back through 0.9785 and towards more critical resistance by 1.0070 further up. Only a close below 0.9450 will give reason for concern.
A UK clearer and Asian account have led buyers in Cable with corporate accounts and a Middle Eastern name selling. A Middle Eastern account is said to have been an aggressive seller along with a real money account in Eur/Usd. Spec players trading the range in Usd/Jpy with large offers around 83.90. A Canadian name has been a repeat buyer in Usd/Cad, with Swiss and UK banks selling Usd/Chf and intraday specs on the bid.
TRADE OF THE DAY
USD/CAD: Daily studies are starting to look a little stretched, and this in conjunction with longer-term cyclical studies which warn of a major base, leave us looking for opportunities to buy rather then selling into the downtrend. The 0.9800 figure seems to be offering itself as a formidable support zone for now, and any dips back towards or slightly below the figure over the coming sessions are viewed as an excellent opportunity to establish a very playable counter-trend long position. Ultimately, only a daily close back below 0.9700 would delay outlook and give reason for pause. STRATEGY: BUY @0.9755 FOR AN OPEN OBJECTIVE; STOP 0.9640. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM NY) ON THURSDAY.
Written by Joel Kruger, Technical Currency Strategist
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