Good morning,
Apologies for the lack of transmission yesterday, but the forces of nature all gathered together to conspire against me and create the morning from hell. But never mind I’m back this morning and with me I bring interesting developments in the market. Not least of which was last night’s move in the EURUSD which was triggered by unfounded rumors of Merkel’s resignation over her proposed tax changes. Unfounded is the word but in a market which is jittery at best some very weak EUR longs were easily cleaned out with stops sitting under 1.4450 getting done and pushing the cross to an overnight low of 1.4410. This morning we walk in to see more stops taken out under 1.4395, printing a low so far around the 1.4380 level, where as has been the case for quite some time, we saw an Asian CB sitting firmly on the bid keeping this thing well propped up. How long this continues and whether or not the same Asian CB is prepared to get the EUR in lower remains to be seen. For the record I remain bearish the cross and with each passing day of price action this week feel that 1.4570 has for now become the new 1.5170. The downside is primed for a firm test of 1.4250 early next week and I do think that we will be 1.3900 at the latest a week or so from today.
Also worth a mention (if only for the irony) is the Japanese manufacturing data we had overnight which was so incredibly bad I had to read it twice to confirm what I was seeing. The irony here of course is the fact that we have seen the JPY strengthen overnight and the USDJPY pushing intermediate support around the 90.50/60 area. Dips down to 90.30 will provide good speculative plays today but with a raft of US data out later this afternoon caution is recommended.
Speaking of data, today we have first up CPI and trade balance data from the Euro zone, which truthfully could go either way, but my pick would be a disappointment and we see this as the catalyst for another sharp move lower in the EURUSD. We also today have plenty on the slate from the US, including CPI, Industrial Production and Uni. Of Michigan survey. Today is not really the day to be getting caught up in USD trading and would advise taking a seat on the sidelines to see how the day and week settle. Also of note is the earnings report of both JP Morgan out this afternoon which could prove just as big a trump card for current risk sentiment.
With regard the majors there is plenty afoot with a lot of the crosses sitting either on or just near enough important breakout levels but interestingly none are too keen to push the button just yet.
Looking at them in no particular order:
AUDUSD: I sent out a strategy piece yesterday recommending selling this cross and clearly my view has not changed overnight. First entry was filled at 0.9290 and to me this thing is still heavy, running out of puff and eagerly awaiting the Feb 2nd RBA meeting for final confirmation of direction. Rallies into 0.9330/60 deserve to be faded and whether you regard this as contrarian or just plain stupid, price action at present is on my side.
GBPUSD: Seemingly firmly inhaling steroids at present, but as we have seen several times over the course of the last 12 months squeezes like the one we’ve been experiencing over the last few days are not out of the ordinary and in this case are more about moves in the EURGBP than the Cable direct and certainly not linked to fundamentals out of the UK. To me 1.6380 is now the important pivot point and I am comfortable selling into it looking for retracements back into 1.6100. Important levels (at least intraday) are now the 1.6280 and 1.6250 handles, breaks and closes below these on hourly or even 4 hourly basis confirm retracements. For those unsure, I am still bearish!
EURUSD: Earlier this week I thought we would have a final blowout above 1.4570 perhaps into 1.4630 at a stretch, clearly though not the case and as noted above for the very short term the 1.4570 level now becomes the 1.5170 zone we had toward the end of the third quarter last year. I do see this thing lower and feel that within the next 10 days we will be seeing a test and subsequent break of 1.4250 taking us into 1.3900 territory. Rallies are recommended to be sold while keeping one eye firmly fixed to the DXY (dollar index).
CHFJPY: Not one that I have mentioned much, but has proven this week to be a great trade with minimal exposure to volatility. I was a seller into 91.00 and above and managed to see target levels on the downside achieved in the 88.50 area. Interestingly that level (88.50) marks the lower end of the current range for this cross and I would feel equally comfortable in the coming week starting to scale in to strategic shorts anywhere above the 90.20/30 area all the way into 91.10/20. Further out it is not unfathomable to being see a test into 87.50 but this will take some time, for now play a safe range and avoid the whippiness of a new year market.
USDCAD: This cross is determined to revisit October lows around the 1.0210 area and it is there that I start to scale into fresh longs keeping firmly in mind that until we see a more structural change to the overall landscape 1.0410/30 will keep a lid on the upside. The BOC meeting next week is not going to yield a rate hike, but rhetoric from Carney could see the Loonie take a little hit in its recent confidence bringing us higher in the USDCAD.
EURGBP: This cross is pushing lower and has been for some time now mainly on the back of consistent M&A flows linked to Cadbury’s. Just like the AUD I fail to get taken with the rest of the crowd and look for 0.8800 to hold the downside producing a firm triple bottom with a lot of wood to chop below there for any further losses. The upside is the key here and a clearance on a daily close above 0.8880 opens the door for a larger move back to 0.9030, where in my mid we find the tops end of the recent declining range.
USDJPY: Still firmly in a range, but my bias is to the downside. It wouldn’t surprise me (and in part I’m almost betting on it)to see 90.30 tested and held and slowly from there we move higher back towards 92.70 over the course of the coming week. The first hurdle and confirmation for this move would a clearance and close above 91.30. Dips can be cautiously bought, but I don emphasize Cautiously!
EURJPY: Look for 130.60 to hold initially after what has been a solid move lower hitting a rising upward trend line. Some more downside is probable but likely to be very shallow and dips could provide good buying around the 129.00 area looking for moves back into 132.30. But again as above with the USDJPY be careful as the volatility on this pair is often very ugly.
As always on a Friday I say don’t ruin your weekend with a cheap punt!
Best regards,
Ken Veksler
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