The ECB resumed bond buys and currencies traded at a stalemate yesterday even as risk assets generally deteriorated. Precious metals, oil and commodities in general suffered a sell off putting pressure to related currencies while the Europeans remained buoyant and consolidated. Rumours about ECB buying Italian and Spanish bonds helped in Europe but the US Philly Fed Manufacturing Index badly missed estimates dragging equities and commodities lower. There is no major event scheduled for today and focus is sharply on Europe. Asia followed overnight moves and equities are 1.5% lower on average while currencies consolidate. Latest data from China shows rise in home prices continues to ease.
| 1.0120 1.0050 | 0.7675 0.7625 | 1.3330 1.3220 | 1.3615 1.3540/55 | 77.50 77.08/20 | 1.5810 1.5830 |
| 0.9970 0.9910 | 0.7565 0.7450/70 | 1.3145 1.3100 | 1.3420/35 1.3240 | 76.80/85 76.30/40 | 1.5730 1.5564 1.5411 |
Falling commodities and overall run for safety stopped early bulls yesterday. Rally of the Australian Dollar faltered at 1.0120 and bears pushed it through 1.0050 key support during late Europe. Yesterday’s low was at 0.9970 and this level provides immediate support for now. Both long and short term chart shows firm bearish momentum and break of 1.0050 support targets 0.9910. Early Asian rally was rejected slightly below 1.0050 confirming resistance. The pair seems to be resuming its fall after weak short covering rally. We are staying on the short side for 0.9910 and only break above 1.0050 key resistance would threaten immediate bearish bias.
Soured risk sentiment sent the New Zealand Dollar lower as yesterday’s early rally faltered at top of our bearish channel. The pair was buoyant above 0.7625 key support until a break lower to 0.7565. Today’s short covering faltered quickly and the pair is testing immediate support at 0.7565. Bearish momentum remains firm and failure at 0.7625 support turned resistance suggest another leg down towards 0.7450/70 key support zone. Break of 0.7565 would confirm the move. On the upper side, 0.7625 is pivotal where broken support from yesterday meets top of bear channel. Next resistance lies at 0.7675 which is a projection of the 5?day MA which overlaps yesterday’s high.
Tandem moves of AUD and NZD produced a sideway consolidation for the Tasman Cross. Key support at 1.3145 held firm despite weakened momentum. This level remains pivotal to the downside strengthened by 5?day MA. Last week’s bullish channel was broken confirming consolidation. The upper side is limited to 1.3220 while a break would challenge 1.3330. This is a more likely outcome given strong bullish momentum on the daily chart however, rally above 1.3320 needed to confirm.
Despite the fact that the only interest for Italian and Spain bonds came from the ECB, the Euro remained surprisingly buoyant given the weakness across markets. Spanish bonds closed nearly at 7% (euro era record) and it probably will not take too long until France comes close to this watermark number too. The pair consolidated around 1.3500 with key support at 1.3420/35 and key resistance at 1.3540/55. This resistance zone is also strengthened by 5?day MA. Next resistance lies at 1.3615 which is the 50% retracement of this week’s decline. The hourly chart shows indecision after the pair left bearish channel and momentum is flat. We see failed rallies at 1.3540/55 zone as good sell opportunities for 1.3240.
The Japanese Yen remained quiet in a very tight range against the greenback. It posted strong gains on the crosses, especially against commodity currencies as safety flows dominated across the board. Yen traders came back to their desks in early Asia today and started buying as the pair fell towards the key 76.80 level. Break lower would risk 76.30/40 next support zone with a potential to test all?time lows at 75.55/70. The hourly chart shows firming bearish momentum but break of 76.80 is needed to confirm. The upper side is capped by clustered resistances at 77.08 and then at 77.20/30.
Over the past couple of days there has been plenty of market chatter that sovereign interest out of the Middle East and China have been selling USDs and buying up EUR and GBP. This has prevented the sharp push lower that the debt storm in Europe would seem to justify. The caution for today, Friday, is that bearish European positions are squeezed and we see sterling and the euro spike higher. (In the mean time the ‘risk off’ view has seen the yen trade higher on the crosses, which at least allowed FXMR to pick up 100 points on AUD JPY ?).
On the hourly Cable chart the major trend is bearish whilst the hourly is neutral as we consolidate between 1.5690 and 1.5810. We remain committed sellers on the fundamentals for both the UK and Europe and also the better eco data out of the US. Thursday’s rally (rising brown band) allows us to calculate some measured targets for the next down leg. Thus we get 1.5564 and 1.5411, respectively the 61.8% and 100% FE of the 1.6092?1.5691?1.5812 move seen this week so far. For us the trigger would be a break of 1.5730 and we would add to our existing shorts at that level.
On the upside we do need to consider a possible short squeeze. However we have a major resistance zone close by with 1.5812, 1.5830 and 1.5858 all coming in as resistances and sell levels.
Source http://www.fxstreet.com/technical/analysis-reports/daily-strategic-report/2011-11-18.html
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