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Currencies Likely to See More Consolidation in Razor Thin Holiday Trade

Currencies Likely to See More Consolidation in Razor Thin Holiday Trade

Joel Kruger, Technical Strategist
  • Economic calendar very thin in holiday session; US NFPs key standout
  • Euro expected to find solid bids towards the 1.3000 area
  • Razor thin trade could invite unwelcome choppiness
  • SNB will be watching closely with EUR/CHF floor being challenged

All is expected to be very quiet today with most markets closed for Good Friday, and many traders having already exited for the long weekend. The European calendar was extremely light with no meaningful economic data releases, although things could get a bit more interesting into North America with the US monthly NFP employment report. Still, with equity markets closed and razor thin conditions, any movement on the back of the jobs number will need to be taken with a grain of salt until normal market conditions resume next week. Markets are forecasting a healthy print just over 200k, with no change anticipated to the 8.3% unemployment rate. Any significant departure from the consensus estimate will likely make for some choppy trade on the thin conditions.

Relative performance versus the USD Friday (as of 9:00GMT)

NZD +0.20%

AUD +0.16%

GBP +0.13%

CAD +0.05%

EUR +0.01%

CHF -0.02%

JPY -0.11%

We would look for more USD bids with an as expected or better than expected showing, while a disappointing result could weigh a bit on the Greenback. Nevertheless, given the Fed’s recent shift away from additional stimulus, it would probably take a really bad number to rock the boat and open a resurgence in broad based US Dollar weakness. Truthfully, even a bad number could be USD positive if markets take it as a global macro risk off sign and feel that more liquidation of risk correlated assets is warranted in favor of the safer buck. Technically, there is some solid internal support from February and March down by 1.3000 in EUR/USD, and the risks are for some form of a consolidation or bounce once this level is retested.

Meanwhile, on the other side of the ocean, economic data has been less than impressive to say the least, and the ongoing struggles in both the Eurozone and UK economies do not support the notion of wanting to be long the Euro or Pound against the buck. Elsewhere, the Franc has started to find some relative bids, and the price action here has been most compelling with the EUR/CHF cross rate testing the highly publicized 1.2000 floor that the SNB has aggressively said they would defend. The risk liquidation theme that has taken hold of markets this week has not been a welcome development for the SNB (the risk off price action makes the Franc naturally attractive given its traditional attributes), and if the central bank is going to act, it might have to be very soon. Otherwise, a sustained break below 1.2000 would seriously undermine the SNB’s credibility and open a rapid deterioration in the cross rate. At this point however it would be surprising to see such a scenario play out and we suspect that the SNB will be very ready to back up its talk with action.

ECONOMIC CALENDAR

Currencies_Likely_to_See_More_Consolidation_in_Razor_Thin_Holiday_Trade_body_Picture_5.png, Currencies Likely to See More Consolidation in Razor Thin Holiday Trade

TECHNICAL OUTLOOK

Currencies_Likely_to_See_More_Consolidation_in_Razor_Thin_Holiday_Trade_body_eur.png, Currencies Likely to See More Consolidation in Razor Thin Holiday Trade

EUR/USD: A break of some multi-session consolidation is significant in the short-term and could now open the door for deeper setbacks over the coming sessions. The latest break and close below some key short-term support at 1.3250 highlights this fact, and now exposes a fresh drop towards medium-term support by 1.3000 further down. Back above 1.3400 would be required to negate bearish outlook and put pressure back on topside. However, the market is well supported in the 1.3000 area and it will take a meaningful break below to convince us of continued bearish price action to challenge the 2012 lows in the 1.2600’s.

Currencies_Likely_to_See_More_Consolidation_in_Razor_Thin_Holiday_Trade_body_usd.png, Currencies Likely to See More Consolidation in Razor Thin Holiday Trade

USD/JPY:Has been locked in some consolidation since the market broken to fresh 2012 highs beyond 84.00 with technical studies unwinding from overbought levels before consideration is to be given for the next major upside extension. The key levels to watch above and below come in at 84.20 and 81.50 and a break on either end will be required for clearer short term directional bias. However, given the bullish breakout in 2012, all signs point to a major structural shift which favors additional upside beyond 84.20 and into the 85.00-90.00 area further up. Ultimately, only back under 80.00 would give reason for concern.

Currencies_Likely_to_See_More_Consolidation_in_Razor_Thin_Holiday_Trade_body_gbp.png, Currencies Likely to See More Consolidation in Razor Thin Holiday Trade

GBP/USD: Failure to establish any fresh momentum following the break above 1.6000, followed by an aggressive bearish reversal now suggests that the market could finally be looking to carve a top in favor of a more significant decline over the coming sessions. Look for a break and close below next support at 1.5830 to reaffirm outlook, while back above 1.6065 would be required to negate.

Currencies_Likely_to_See_More_Consolidation_in_Razor_Thin_Holiday_Trade_body_usd_1.png, Currencies Likely to See More Consolidation in Razor Thin Holiday Trade

USD/CHF: Our core constructive outlook remains well intact with the latest setbacks very well supported by psychological barriers at 0.9000. It now looks as though the market could be looking to carve a fresh higher low, and we will be looking for additional upside back towards the recent range highs at 0.9335 over the coming sessions. Above 0.9335 should then accelerate gains towards the 2012 highs by 0.9600 further up. Ultimately, only back under 0.9000 delays and gives reason for pause.

--- 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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