Risk Off Trade Builds Momentum in European Session
- Downbeat China and more dovish RBA initially weigh on sentiment
- Global equities start to show signs of topping
- Greek PSI rumors denied but Euro still under pressure
- Yen also finding renewed bids following intense multi-day selling
- Check out our roundup of global equity markets
Some downbeat news out of China relating to growth forecasts and a somewhat more dovish than expected RBA proved to be the initial catalysts for some risk off trade which dominated the European session. Global equities took a hit and longer-term accounts took the opportunity to exit some higher yielding FX positions as reflected by the pullbacks and relative underperformance in the commodity bloc. The Euro did however manage to play catch-up (or catch-down for the matter) with the single currency accelerating to the downside after triggering major stops below 1.3160. Rumors of a delayed Greek PSI deadline were attributed to the aggressive Euro selling and although these rumors were later denied, the bearish momentum could not be slowed. A doom and gloom article in the Telegraph calling for eventual Greece exit followed by Portugal is not helping risk sentiment.
Relative performance versus the USD Tuesday (as of 11:50GMT)
Elsewhere, USDJPY and the Yen crosses were also big movers on the day, with the oversold technical readings in the Yen finally unwinding to open a sizeable retreat in these markets. Overall, the risk off sentiment looks like it just might be enough to finally break a multi-day consolidation in the global equities markets which suggests more fear and uncertainty over the coming days. Of course, there is still a good deal of event risk this week, and traders will be sure not to get to ahead of themselves, with the RBNZ, BOE, ECB and US NFPs all still to come in the latter half of the week.
EUR/USD: The latest failure ahead of 1.3500 and subsequent break back below 1.3350 could now warn that a lower top is finally in place ahead of the next major downside extension below the 2012 lows by 1.2620. However, there is some short-term rising trend-line support off of the 2012 lows by 1.3150 which will need to be convincingly broken before we can really get behind the idea of a full on downside acceleration. Inability to establish below 1.3150 will keep bulls in the picture and could still warn of additional corrective gains in 2012. Back above 1.3320 will also compromise bearish outlook. Look for clarity with Tuesday’s daily close to see if the market will end up below 1.3150 or above.
USD/JPY:The market is doing a good job of showing the potential for the formation of a major cyclical bottom after taking out the 200-Day SMA and now clearing psychological barriers by 80.00 for the first time in 6 months. This further solidifies basing prospects and we could be in the process of seeing a major bullish structural shift that exposes a move towards 85.00-90.00 over the coming months. At this point, only back under 77.00 would delay outlook and give reason for concern. However, in the interim, it is worth noting that gains beyond the recent highs at 81.85 over the coming sessions could prove hard to come by with technical studies needing to unwind from their most overbought levels in over 10 years before a bullish continuation. As such, we would caution buying breaks above 81.70 for the time being and instead recommend looking for opportunities to buy on dips into the 78.00-80.00 area.
GBP/USD: Inability to establish above the 200-day SMA once again keeps the multi-day range intact, and from here we would look for a bearish resumption back down towards the 1.5650 area over the coming sessions. Look for a sustained break below 1.5800 to confirm outlook, while only a daily close back above 1.5950 gives reason for concern.
USD/CHF: Setbacks have stalled for now just ahead of 0.8900 and the market could finally be looking to carve the next medium-term higher low ahead of a bullish resumption and eventual break back above 0.9660. Look for additional gains over the coming sessions back towards 0.9300, with a break above to confirm and accelerate. Ultimately, only a drop below 0.8930 negates and gives reason for pause.
--- Written by Joel Kruger, Technical Currency Strategist
To contact Joel Kruger, email email@example.com. Follow me on Twitter @JoelKruger
To be added to Joel Kruger’s distribution list, send an email with subject line “Distribution List” to firstname.lastname@example.org
Check out Market Vibrations: News and commentary