Evening forex report
The yen is taking center stage so far with the break of 105 leaving 104 exposed, losses through here leaving 101+ and 100 exposed if seen. The AUD and NZD are getting slapped down as carry trades are being lifted, with the CHF firming sharply across the board as this one is being ‘carried along’ as well. What to do? Yen risk is at key levels here and if 105 is not regained today or if 104 gives up the ghost look for 101+ probes, potential to break below 100 and a lot lower building. Again, the yen story as a ‘buy in case the world ends’ is a tough one to get excited about, and this seems more stop loss driven. The AUD collapse could be different though, see if 0.94+ proves tough to regain now, with a drop to 0.91 at risk here vs the USD. Favoring picking on the CAD, it hasn’t moved and it could be set to push to 1.01 and higher so… In the EUR/USD see if 1.5150 is pressed next, then to 1.5050 as the EUR/YEN cross retreat could see 156 again… EUR/GBP ’should’ be heading to 0.78 on this break, but watch 0.7630 on pullbacks, trigger for 0.7580/lower.
Exotic currencies report
One of the better stories in the relatively high yield world has been the MXN as this currency has pushed from 10.80 towards 10.65 over the last few days, pretty much on target for 10.60 probes. The latter marks key support for the USD which if lost would leave 10.40 to attract and leave a very big, multiyear top in place. While this is possibe, and indeed has been favored for a long time, chances are that the current spate of strength may not persist and in fact a pullback to 10.80/85 should be played for. If the US economy is set to tumble further, then Mexico, like Canada, will be hit to some extent. If the bet in the market is that Mexico has decoupled from the US, this seems unlikely. The proof is in the pudding though, watch the turn below 10.70 to see if this holds, and use pushes through this area as warning signals for 10.80 in quick order. Pressure below 10.63/60 would do a lot to confirm the ‘decoupling’ trade though, so interesting times ahead? Favoring 10.80/85 to buy again on but….
Focus on Yen
The USD/YEN push through Y105 overnight is leaving the downside well and truly exposed, with the 101+ area vulnerable for 100 and then to the mid-and lower ’90’s. The big swing target for bears remains the 1995 low at the 79.80 area, and while a solid case for why the Yen should be there can always be built on trade flows etc., chances are that current levels should be attractive to USD bottom fishers. Corporate Japan will be stepping up their complaints as the yen surge will start to hit exporters, and while the BoJ may be loathe to step in and fend off yen buyers, given that the worlds focus is still on China, they may see the window here as being open to them. Keep in mind that the economic data has been patchy at best here for months, the last thing that the BoJ wants to see is any signs of recovery nipped out by a strong yen. On a chart basis, the falling channel line near 104 is attractive for bottom fishers, but the weekly chart (below) highlights the ‘floor’ ahead of 100. This is important, and if lost then the trading activity is likely to become ‘one way’ for some time to come, so risk levels are key to hold now. Upside? If the view that the ‘doom and gloom’ on the US economy is way overdone is right then chances are that the Yen should be a sell ahead of Y104 for a push above 105 again. Use 105 to 105.30 as res. levels to break for 108.60 again, then up to higher levels. The turn below 105 is a watershed though, and while the ties to the general ‘risk appetite’ in the world and equity markets is anecdotal to a large extent, the markets are treating the Yen as a ‘flight to quality’ currency. So… plenty of crosswinds and the price action is quite sharp. But… at current levels the yen is poised to firm a lot further, see if the 104 area proves sticky, or 101/100 and a lot lower here we go.
Morning forex report
The USD remained soft o/n, following the sell off after the soft jobless claims (373K) and Pres. Bush saying that he favors a strong USD, as did Tsy Sec. Paulson. The mkt is voting with their feet though, and with eyes on a softening economy and rate cuts ahead, traders are going with the flow. The yen punched through 105, and while 101 and lower are clearly at risk on a bear flag (80?) right now favoring bottom fishing for a pop back to 108+. Why? Falling line support near 104 may avoid being tested, the Japanese fundies are still soft, and the USD selling seems a bit too one way. In the EUR/USD the risk is to 1.55/1.56 still and then 1.60, but watch activity today for pullbacks to 1.5050/40. While the break is for real, chances are that payrolls won’t be as bad as the trading off jobless claims implies, and Trichet is not stupid, look for some attempts at jawboning the USD up a smidgen next week, he doesn’t want to see one way FX trading and 1.50 being lost forever…
Evening forex report
The USD consolidated in London morning trading, see if this continues into NY with Fed Chairman Bernanke expected to stick to yesterday’s testimony, the Q&A session may draw out something new though. Given his propensity to stick to the ‘cut rates as needed’ mantra, even though he injects a few cautionary words on inflation now and then, the market is unlikely to take a positive USD outlook here… The GDP data is old news and will have to really come out sharply different from expectations to move the markets, not that likely. On the charts the USD is on a back foot and looks ready to fall further pretty much across the board, with the focus shifting to next weeks payrolls. A soft number would send the USD into a deeper tailspin, and while the USD is looking way too cheap now and should be drawing out bottom fishers, the trend breakout in the AUD, NZD, CHF and EUR is tough to argue against, another 3% to 5% of losses ahead ?
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