Australian Dollar Outperforms While Most Other Currencies Mildly Bid
FUNDYS
All things considered, it has been a fairly quiet start to the new week, with Japanese markets closed for holiday trade and currencies mostly seen consolidating recent gains in Asian trade and European trade. Traders are however paying close attention to the Euro which remains constructive despite Friday's bearish close, with the market attempting to put in yet another consecutive daily higher low. 1.3020 is the key level to watch below, and a break below will be required to take the pressure off of the topside. Elsewhere, the Australian Dollar stands out and has been getting most of the attention on Monday after two separate and isolated developments have emerged in early trade. Initially, the currency seemed poised for some selling after a Bloomberg article made the rounds. The article suggested that the Australian Dollar was some 27% overvalued and could be at risk for a major pullback as a result.
Relative Performance Versus USD Monday (As of 9:40GMT)
AUSSIE+0.97%
SWISSIE+0.55%
KIWI+0.47%
EURO-0.36%
CAD-0.24%
YEN-0.22%
STERLING-0.27%
Nevertheless, many market participants have discounted the article, which seems to throw a lot of weight in its argument on purchasing power parity which beyond classroom economics is not really seen influencing the drivers behind the currency strength. Nevertheless, while the PPP argument might not carry as much clout, we do contend that the currency is indeed at risk for a major depreciation, as global growth issues weigh on demand for Aussie commodities and in turn act as a major strain on the local currency. For now, it only becomes a question of timing, and this means that we still could see a higher rate towards 0.9800 before ultimately getting the reversal that we are looking for.
Certainly comments from RBA Steven on Monday have more than offset any fears of an overvalued currency after the central banker suggested that rates could still move higher over the near-term as domestic demand continues to expand. The Governor downplays and risks to Chinese slowdown, which we contend could prove to come back to haunt a central bank which could be moving too aggressively with its monetary policy.
On the data front, Kiwi performances of services were slightly improved, while consumer confidence came in as expected. Meanwhile, UK Rightmove house prices were mixed, with the monthly improving from previous prints, while yearly data was weaker. Also out of the UK were some slightly weaker mortgage approvals and mixed M4 money supply readings. The on the whole softer UK data was seen as the primary driver behind the relative Sterling weakness.
In Switzerland, the KOF economic forecasts were released and certainly didn't hurt the Franc's renewed bid tone after the report came out very upbeat with raised forecasts to GDP. The KOF forecasts should however be taken with a grain of salt following an SNB statement in the previous week that was anything but rosy.
Looking ahead, Canada international securities transactions ($CAD8B expected) and wholesale sales (0.1% expected) are due at 12:30GMT followed by US NAHB house prices (14 expected) at 14:00GMT. US equity futures and gold prices are tracking moderately higher, while oil trades flat. Gold has managed to grind out yet another record just over $1283.
TECHS
EUR/USD:The daily close above the 61.8% fib retracement off of the major move from August has seriously dampened bearish prospects, with the market racing above 1.3100 thus far. Next key resistance comes in by 1.3170 which represents the 78.6% fib retracement off of the August move, and the final line of defense for USD bulls before a full retracement to 1.3335. A close above 1.3170 will open a direct retest of the critical 1.3335 highs , while a close below will still keep alive the potential for a bearish resumption. For now, 1.3020 is the key short-term level to watch below, with the break to officially relieve topside pressures.
USD/JPY:The major downtrend could finally be at risk of expiring following the latest surge back above the 20-day SMA. Last Wednesday's close above the 20-Day SMA was indeed the first obstacle that needed to be overcome to potentially force a shift in the structure, while the next test will be the Ichimoku cloud bottom that comes in around 86.20. Daily studies certainly show plenty of room for additional upside, so we would look for a break into the cloud (currently defined roughly between 86.20-88.50) before considering any possibility of a bearish resumption.
GBP/USD:The latest break back above 1.5700 threatens the integrity of the downtrend and potentially exposes a move back towards 1.6000 over the coming sessions. It is however worth noting that the 61.8% fib retracement off of the 1.6000-1.5295 move, comes in by 1.5730, and should we manage to hold below this level, the bearish structure will remain intact.
USD/CHF:Finally showing some serious signs of a material base, with the market very well supported on dips below par. Medium-term and longer-term technical studies certainly confirm the possibility of some major upside ahead, but for now, we will need to see a break back above next key topside barriers by 1.0280 to reaffirm recovery prospects.
FLOWS
Middle East accounts bidding Eur/Usd, Gbp/Usd and Aud/Usd. Real money on the bid in Aud/Usd. Model accounts buying commodity bloc. Leveraged names looking to sell Eur/Usd rallies. Some official interest reported on rallies in Swissie.
TRADE OF THE DAY
Aud/Usd: We like the idea of fading any rallies towards 0.9500 with the psychological barrier offering itself as a formidable medium-term resistance zone. While the market has managed to break to fresh 2010 and multi-month highs to potentially open the door for an upside extension towards 0.9800, we do not see things playing out this way, with the current move classified more as a minor overshoot that should ultimately result in yet another major medium-term top. Indeed the daily RSI has crossed above the 70 threshold to confirm the overbought nature of daily studies and reaffirm our bearish bias, while hourly studies are also supportive of the counter-trend position. Ultimately, only a close back above 0.9500 would negate and give reason for concern. We have attempted to sell twice over the past few days and have been taken out at cost on both positions after moving stops to eliminate risk, and we will look to take another shot if given the opportunity on Monday. STRATEGY: SELL @0.9505 FOR AN OPEN OBJECTIVE; STOP 0.9605. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) MONDAY.
Australian Dollar Outperforms While Most Other Currencies Mildly Bid
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