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Greenback Initially Bid on Osama News But Finding Offers into North America
Written by article default Monday, 02 May 2011 11:18
The big news of the day has been the reported and confirmed death of Osama Bin Laden. Although markets haven’t been big movers to this point on the news, we have seen some movement. The Australian Dollar had initially surged through massive barriers by 1.1000 in early trade but has since retreated on the news and has also been finding some offers on profit taking from shorter-term accounts by the psychological barrier. Another notable mover on the day has been gold, with the yellow metal also racing to fresh record highs by $1575 before pulling back in response to the Obama headlines.
Relative Performance Versus the USD Monday (as of 8:45GMT)
- EUR +0.09%
- GBP -0.08%
- AUD -0.15%
- NZD -0.25%
- CAD -0.34%
- JPY -0.42%
- CHF -0.43%
It is also worth noting that irrespective of the Osama news, markets have been very well bid over the past several days and weeks and technical studies have been warning of the need for a corrective reversal. This reversal would open the door for some broad based USD strength and selling in other correlated asset classes like global equities and commodities. At this point, the fundamental catalyst for said reversal has yet to fully reveal itself, and it will be interesting to see how things play out from here. In our previous report, we cited research from some major players in the FX market that forecasted a near-term reversal in favor of the Greenback, and this further supports the view that we could be on the verge of a shift in the market structure.
On the data front, in Asia, some softer China manufacturing PMIs could be weighing a bit on sentiment, but liquidity has been questionable on Monday with China, Hong Kong and Singapore markets closed, Japan effectively off for the Golden Week holiday, and the UK closed for May Day. Meanwhile, in European trade, Eurozone and German manufacturing PMIs were slightly better, while Swiss manufacturing PMIs were on the softer side. Looking ahead, US construction spending and ISM manufacturing will be in focus in North America. US equity futures are very well bid for the time being in reaction to the Osama news, while commodities have been offered.
ECONOMIC CALENDAR
TECHNICAL OUTLOOK
EUR/USD: Daily studies could be in the process of attempting to correct from overbought, with the RSI looking to roll over from above 70 levels, and we would look for a daily close below 1.4800 on Monday to confirm short-term topping and open the door for a more significant short-term corrective decline towards the 20-Day SMA by 1.4500. A sequence of consecutive daily higher lows has also been broken to warn of the potential bearish reversal, but with the trend having been so intensely bullish, we would wait for the daily close below 1.4800 for confirmation. Ultimately however, any setbacks from here are still viewed as corrective, with the market very much confined to a well defined multi-week up-trend from early 2011. Perhaps a daily close below the 20-Day SMA would officially shift the medium-term outlook. Back above 1.4885 exposes next critical resistance by 1.5000 and then the 2009 highs further up at 1.5145.
USD/JPY: Despite the latest slide back below 82.00, we continue to retain a constructive outlook for the market so long as it holds above the daily Ichimoku cloud. Daily studies do however still show room for additional setbacks before the cloud can support, and as such, buying at current levels is not recommended. Use the cloud as a reference point and look to buy dips to the cloud top or on a break back above the 200-Day SMA by 83.30. Ultimately, only a sustained break back below the cloud would negate constructive outlook. A potential bullish outside day formation on Monday could warn of a base and open the door for the next major upside extension. However, too early to tell at this point.
GBP/USD: The latest surge through psychological barriers at 1.6500 has now negated the multi-week range trade and potentially exposes fresh upside ahead. The 2009 highs come in by next critical resistance in the form of the 1.7000 barrier and we could now se a test of this level over the coming days. Still, this market has proven to be very well offered on any fresh rallies, and we would therefore recommend proceeding with caution. Buying on dips is the preferred strategy. Look for any setbacks to now be well supported by the 20-Day SMA in the 1.6400 area. Daily studies are however stretched and back below 1.6625 could open a corrective pullback to the 20-Day SMA.
USD/CHF: The latest break to fresh record lows below 0.8700 is certainly concerning and threatens our longer-term recovery outlook. Still, we do not see setbacks extending much further and continue to favor the formation of some form of a material base over the coming weeks for an eventual break back above parity. Look for the market to hold above 0.8600 on a daily close basis, while a daily close back above 0.8760 will officially relieve immediate downside pressures and accelerate gains. Only a break and weekly close below 0.8500 ultimately delays outlook.
FLOWS
Exporters, corporate types and a semi-official account all sen on the bid in Usd/Jpy. Asian and Middle Eastern demand noted in Eur/Usd around lows with a semi-official account selling.
Written by Joel Kruger, Technical Currency Strategist
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