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Currencies Bid Early Monday But Risk Rally Lacks Bite

Currencies Bid Early Monday But Risk Rally Lacks Bite

Joel Kruger, Technical Strategist
  • Greek parliament passes austerity motion
  • Euro considering break above 100-Day SMA
  • Aussie once again outperforms on risk positive themes
  • EU officials warn against getting to risk supportive
  • Friday’s US equity close should however not be ignored

So far, a very quiet start to the week, but risk correlated assets have been benefiting on Monday thus far. The primary driver of the price action has come on the back of the news that Greek Parliament has gone ahead and passed the austerity motion. The Euro has found renewed bids and once again considers the possibility of a rally to fresh 2012 highs beyond the 100-Day SMA, while Aussie and Kiwi are performing even better today on the risk positive themes.

Relative performance versus the USD Monday (as of 11:55GMT)

  1. NZD +1.06%
  2. AUD +0.82%
  3. CHF +0.50%
  4. EUR +0.47%
  5. GBP +0.36%
  6. CAD +0.33%
  7. JPY -0.08%

However, we would not ignore Friday’s price action which showed US equities rolling over and hinting at the potential for a more significant pullback. This ultimately warns against establishing any aggressive risk on positions, and it would probably be best to wait and see how markets settle later today. Comments from German FinMin Schaeuble and EU Barroso reinforce our views after the officials warned that EU difficulties were far from behind us and that talks still needed to be finalized on the second Greek aid package.

The economic calendar for Monday is exceptionally light and the ongoing Eurozone crisis will likely continue to drive price action. Italian bond auctions results were fairly well received but did not seem to factor into price action. Overall, our bias is more on the risk negative side and would be looking for underperformance in risk correlated currencies and global equities over the coming weeks.


Currencies_Bid_Early_Monday_But_Risk_Rally_Lacks_Bite_body_eur.png, Currencies Bid Early Monday But Risk Rally Lacks Bite

EUR/USD: The latest multi-session consolidation has been broken, with the pair clearing resistance at 1.3235 and opening a test of the 100-Day SMA just over 1.3300. Given the recent consolidation range of approximately 200 points (1.3025-1.3235), we will leave the door open for a move towards the 1.3450 area before the market eventually looks to stall out and carve a more meaningful lower top ahead of broader underlying bear trend resumption. A break back below 1.3025 is now required to officially alleviate immediate topside pressures.

Currencies_Bid_Early_Monday_But_Risk_Rally_Lacks_Bite_body_jpy2.png, Currencies Bid Early Monday But Risk Rally Lacks Bite

USD/JPY:The market could once again be looking to carve an interim base after setbacks stalled shy of the record lows from October by 75.55. The latest daily close back above 77.00 should do a good job of alleviating immediate downside pressures and reintroducing longer-term basing prospects. From here, look for an acceleration of gains back towards next key resistance by 78.05-78.30 further up which represents the 200-Day SMA and some key range resistance. At this point, only back under 76.50 would negate outlook and give reason for concern.

Currencies_Bid_Early_Monday_But_Risk_Rally_Lacks_Bite_body_gbp2.png, Currencies Bid Early Monday But Risk Rally Lacks Bite

GBP/USD: Gains have stalled out just shy of the 200-Day SMA for now and the market looks to be entering a fresh period of consolidation before considering the next major move. Key levels to watch above and below come in by 1.5930 and 1.5730 respectively, and a daily close above or below will be required for clearer directional bias. A close below 1.5730 could open the door for some broader underlying bearish resumption, while back above 1.5930 exposes the October highs by 1.6170 further up.

Currencies_Bid_Early_Monday_But_Risk_Rally_Lacks_Bite_body_swiss1.png, Currencies Bid Early Monday But Risk Rally Lacks Bite

USD/CHF: Although our overall outlook remains intensely bullish, the market is in the process of some interday corrective activity before the next major upside extension beyond 0.9600 and towards parity. However, look for any setbacks to be very well supported into the 0.9000 area, with the level representing a key psychological barrier and also coinciding with the lower Bollinger band. For now, a break back above 0.9265 will officially be required to confirm outlook and alleviate immediate downside pressures.

--- Written by Joel Kruger, Technical Currency Strategist

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