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Chinese, German Data Encourage Risk as Currencies Rebound

Chinese, German Data Encourage Risk as Currencies Rebound

2012-01-17 12:37:00
Joel Kruger, Technical Strategist
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  • China GDPwellreceived overnight
  • UK CPIas expected
  • German ZEWsurvey shows improvement
  • Euro well supported on the day,breaks above 1.2800

Some solid data out of China has helped to bolster risk appetite into Tuesday trade with even the Euro finding bids and attempting to recover from multi-day lows. At this point, market participants have been able to shrug off the S&P downgrade of the EFSF and are instead more comfortable booking profits on what seems to be a stretched Euro market even despite the lackluster fundamentals in the region.

Mid-session risk-off comments by the ECB and BoE regarding Greece were largely ignored. Of course, the bounce in the Euro should only be taken with a grain of salt and we would only become more convinced of the rally should the market be able to break back above last Friday’s highs at 1.2880. Until then, it is a game of wait and see.

Relative performance versus the USD Tuesday (as of 10:30GMT)

  1. AUD 1.00%
  2. EUR 0.92%
  3. NZD 0.83%
  4. CHF 0.81%
  5. CAD 0.40%
  6. GBP0.33%
  7. JPY -0.01%

Elsewhere, the commodity currencies continue to outperform with both Aussie and Kiwi testing some key barriers by 1.0400 and 0.8000 respectively. The 200-Day SMA in Aud/Usd comes in just over the 1.0400 handle, while 0.8000 has been a major psychological barrier for Kiwi. While these markets have been well bid in early 2012, we do not see gains sustaining above these major barriers. The China data has certainly contributed to the relative outperformance on Tuesday, but again, we remain skeptical with any positive developments out of China and continue to see the country at risk for a major slowdown over the coming months as the global recession intensifies in Asia.

TECHNICAL OUTLOOK

Chinese_German_Data_Encourage_Risk_as_Currencies_Consolidate_body_eur.png, Chinese, German Data Encourage Risk as Currencies Rebound

EUR/USD: Last Friday’s aggressive bearish reversal has negated the potential for a double bottom formation in the market and now opens the door for a fresh drop over the coming sessions back towards key psychological barriers at 1.2500. Still, daily studies are looking stretched to us and any additional weakness below 1.2500 is seen limited over the short-term in favor of a decent corrective rally. Back above 1.2880 required to officially alleviate immediate downside pressures.

Chinese_German_Data_Encourage_Risk_as_Currencies_Consolidate_body_jpy2.png, Chinese, German Data Encourage Risk as Currencies Rebound

USD/JPY:Despite the latest pullbacks, we continue to hold onto our constructive outlook while the market holds above 76.55 on a daily close basis. We believe that any setbacks from here should be limited in favor of a fresh upside extension back towards 79.55 over the coming weeks. Look for a break above 78.30 to confirm and accelerate, while only a daily close below 76.55 negates and gives reason for pause.

Chinese_German_Data_Encourage_Risk_as_Currencies_Consolidate_body_gbp2.png, Chinese, German Data Encourage Risk as Currencies Rebound

GBP/USD: The market has mostly been locked in some sideways chop over the past few weeks with any rallies very well capped ahead of 1.5800 and setbacks supported on dips below 1.5300. Until either side is convincingly broken, we would expect to see additional range trade. Therefore the preferred strategy is to look to buy range dips and sell by range highs. Only a weekly close above 1.5800 or below 1.5250 would give reason for outlook shift.

Chinese_German_Data_Encourage_Risk_as_Currencies_Consolidate_body_swiss1.png, Chinese, German Data Encourage Risk as Currencies Rebound

USD/CHF: This market remains very well supported on any form of a dip and looks poised for a fresh upside extension towards 1.0000 over the coming weeks. Look for a daily close back above 0.9600 to confirm and accelerate. Ultimately, any dips should be used as formidable buy opportunities, while only back below 0.9000 would ultimately threaten the recovery outlook.

--- Written by Joel Kruger, Technical Currency Strategist

To contact Joel Kruger, email jskruger@dailyfx.com. Follow me on Twitter @JoelKruger

To be added to Joel Kruger’s distribution list, send an email with subject line “Distribution List” to jskruger@dailyfx.com

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