Good morning,
Ahhh the euphoria of a firmer Cable seems to have subsided and reality has finally set in. Looking at the factors as noted yesterday:
• The CPI data – over inflated on the back of higher VAT and December petrol prices
• Kraft has finally bought Cadbury’s
• Goldman Sachs talking their own long Cable book
• 3 separate occasions at which the BOE et al. have talked growth and inflation down over the coming years, need I mention the Inflation report of only 2 months ago…
• Oh and did I mention that the UK is in the toilet coupled with an election year… don’t believe the politicians!
So if you’re not quite convinced yet of a weaker Cable then I don’t think you ever will be. In the UK this morning we have the BOE minutes along with UK unemployment on tap, both of which should secure the above view and I look for 1.6250 to be taken out with first target of 1.6180.
Moving on let’s look at the massive Greenback move overnight starting with the EURUSD which took out long standing barriers into 1.4200 and triggered serious gamma covering all the way into an overnight low of 1.4166, we come in this morning to see a brief recovery as is always the case but I expect t his to be short-lived and don’t rule out a squeeze into 1.4230/50 at which point I am a big seller still looking for 1.3900 in the coming days.
The AUDUSD took an equally big hit overnight and I am moving in for my first target of 0.9115 from the 0.9290 sell. Having closed below the breakout and support of 0.9170 the direction is confirmed to the downside for the time being. Another commodity currency feeling some pain is the CAD but mainly only through the big dollar on the back of dovish commentary from Carney of the BOC yesterday. Having closed above 1.0320 I look for a test in the coming days of 1.4020/30 which for now is far more formidable resistance, for those long I recommend you stay that way as the risk reward for those that bought on dips as suggested into 1.0250 is improving with each passing day. Keep an eye on CAD CPI today for more direction, however be warned we may see a mixed signal to the market as it capitulates on which way to go.
Elsewhere today we have the US housing starts and PPI which will cause a small if not insignificant ruffle in the market. More interestingly though (and I’m still scratching my head to understand) the election of a Republican to Teddy Kennedy’s old senate seat has been widely received by the market as USD positive?????????!!!!!!!!!!!!!! I mean net/net all this means is the Democrats likely lose their senate majority and the recently introduced Obama healthcare bill gets scarpered, how this equates to dollar strength though is beyond me. I say just keep an eye on the DXY to get a better understanding of where the USD is likely to go in the coming days.
And finally the USDJPY…. I still think this thing goes higher and dips need to be bought, but until we decisively break the 91.30 upside pullbacks could be as deep as 90.30 so look to average into fresh longs strategically rather than haphazardly.
Best regards,
Ken Veksler.
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