Euro Locked in Choppy Trade While USD/JPY Treads Above Key Figure
- Euro still eyeing test of 100-day SMA
- Greek PSI talks ongoing; waiting for official agreement
- China’s Wen says considering greater contribution to ESM/EFSF
- Fed Chair Bernanke testimony and US NFPs in focus
- Aussie trade data comes in better thane expected
- EUR/CHF and USD/JPY by key levels
Currencies still remain well supported on dips heading into the latter half of the week and the Euro still could head higher towards our objective by the 100-Day SMA at 1.3355. The key level to watch over the coming session comes in by 1.3235, and a break above should accelerate gains. For now, we are still waiting for additional details and the finalization of the Greek PSI deal, and any actualization of the agreement over the coming sessions could act as the catalyst for the next push in the major towards 1.3355. Talk in Europe circulated of the imminent announcement of a deal, but once again nothing materialized and the Euro was left consolidating. Also out in Europe were Euro supportive comments from China’s Wen who said the country would consider greater involvement in the EFSF and ESM. Other factors which come into play over the coming days are the Fed Chair Bernanke testimony and the all important US Non-farm payroll report due out on Friday.
Relative performance versus the USD Thursday (as of 12:00GMT)
Elsewhere, the commodity currencies continue to outperform, with Aussie rallying up through 1.0750 following the better than expected trade data earlier today. Market participants managed to shrug off the less encouraging Aussie building approvals, and remain intent on buying the higher yielding currency which has correlated so well to exceptional global equity performance. Other markets worth keeping an eye on are EUR/CHF which trades just over the critical 1.2000 SNB floor and USD/JPY which threatens a retest of the record lows from October at 75.55. The Japanese FinMin was on the wires overnight warning that firm measures will be taken and that short term speculative Yen moves will not be ignored. While we see risks for a break of the record lows at 75.55, we would also heed the warnings of Japanese officials and favor looking to buy USD/JPY with additional declines seen limited from here.
EUR/USD: Although gains in this market have been quite impressive in recent days, the price action is still classified as corrective with the market locked in a broader underlying downtrend. From here we would still leave the door open for additional upside to test the 100-Day SMA by 1.3355, but any additional gains should be well capped below 1.3500 on a daily close basis in favor of the formation of the next major lower top ahead of bearish resumption. Ultimately we see risks for a move back below the 2012 lows at 1.2620 and towards the 1.2000 area over the coming months.
USD/JPY:The higher platform that we had been looking for by 76.55 has now been broken with the market eyeing a direct retest of the record lows from October at 75.55. Overall, we will still be looking for opportunities to be buyers on dips, with longer-term studies warning of a cycle low at some point over the coming months. Our strategy will be to wait for some oversold daily studies and then look to take another shot at the long side. A break back above 76.80 will be required at a minimum to relieve downside pressures.
GBP/USD: The latest break back above 1.5800 now compromises a multi-week consolidation, with the pair now looking to break towards next key resistance by 1.6000. However, despite the upside move, we see any additional gains from here as limited and would look for a topside failure somewhere ahead of 1.6000 in favor of a bearish resumption. Daily studies confirm and look stretched and selling rallies above 1.5900 over the coming sessions is the preferred strategy.
USD/CHF: Although our overall outlook remains intensely bullish, the market is in the process of some interday consolidation before the next major upside extension beyond 0.9600 and towards parity. However, with the latest consolidative declines now finally testing the 100-Day SMA, any additional downside should be limited in favor of a fresh upside extension. Ultimately, only a daily close back below 0.9000 would give reason for concern. Alternatively, a close back above 0.9250 would alleviate immediate downside pressures and reaffirm outlook.
--- Written by Joel Kruger, Technical Currency Strategist
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