A quick scan of the headlines shows that the global economy is facing a rocky time; China is reporting property and banking problems, Australian banks predict 1.5% of rate cuts, NZ and Ireland again face net migration, Europe is a complete mess, the UK faces a hard slog despite early and deep austerity measures, and in the US politicians cannot agree on anything let alone balncing their books to avoid their own debt crisis. It’s no surprise then that stock and commodity markets are being marked lower. On the foreign exchanges the havens of choice are the USD and JPY and Monday saw a flow into both. So far Asia has been less decisive on Tuesday but we are looking ahead to Thursday and the US Thanksgiving holiday. For us this likely marks a further risk off deadline and we could well see haven flows accelerate. Anyone remember Eddie Murphy’s classic market wrap in ‘Trading Places’?.......
| 1.0010?15 0.9877 | 0.7605 | 1.3205?10 | 1.3520?25 | 0.7730?35 0.7715 | 1.5765 |
| 0.9735 | 0.7422 0.7376 | 1.3130?40 1.3050 | 1.3430 1.3383 1.3240 | 0.7695 0.7675 | 1.5640 1.5487 |
Since slumping to 0.9808 the ozzie has traded sideways and recovered a little poise. The eco backdrop remains grim and hence AUD has to continue to be a ‘sell on rallies’. The first resistance is at 0.9877 and then there is a gap up to the bearish 5? day average at 1.0010?15 but falling. The next hourly target is at 0.9735 and our SR calls for an extended move to 0.9400.
Strategic players might choose to sell and/or remain short with a stop through 1.0050. Shorter?term players could look for a break of 0.9850 as a sign that the current consolidation is over and that the next leg of the down phase is underway.
Much as with the AUD above, the NZD has extended the down trend and losses of last week before consolidating through Asian time. The low European at 0.7448 was briefly tested by NZ and has held again. A third test and break would restart the major risk off trend that has temporarily stalled. The major daily and minor hourly trends are both lower however the first resistance is some distance away at 0.7605 (bearish and falling 5?day average). Existing shorts could probably sit tight. Shorter?term positioners could wait on a turn of current strength or sell a break of that 0.7448 support. Next target is at 0.7376.
Monday saw us predict a 50?point range either side of 1.3175 and that’s near enough what we got – low at 1.3145 and high at 1.3208. Now we are back where we started again and directional clues are hard to find.
The hourly trend is mildly bearish and the next support is not until the rising 22?day average down at 1.3050. If forced to make a projection we would call the cross down to that level, but without any real conviction.
So far this week the euro has traded in a narrow range between last week’s support at 1.3430 and the resistance at 1.3520? 40. Given the severe crises in European markets this surprises but does provide a partial explanation in that the market is surely short of euros and hence is struggling to push it lower.
That said 1.3520?25 is the level of the bearish 5?day average that has provided good sell signals for 2 weeks now and we remain true to our big picture call that this is headed for 1.3240 with some support at 1.3383 along the way.
Asia produced a spike to 0.7733 on chatter of government purchases of foreign bonds. This has been discounted but the effect has likely been to squeeze out some shorts. This is also likely on some of the JPY crosses. We keep to our strategy of staying clear of USD JPY positions preferring to sell the crosses (buy JPY) to reflect our risk off view. AUD JPY looks good for 0.7400 from 0.7595 at the time of writing, for example.
By now the UK economy should have benefitted from deep rate cuts and a sharply weaker currency however current data and future predictions are showing the economy still struggling to grow and vulnerable to contagion from across the channel in Europe. Thus sterling has slipped against the USD this week already before consolidating at lower levels. We expect the move to continue onto 1.5487 and maybe 1.5250. Thus existing shorts should sit tight. The closest resistance is some way away at 1.5765 and patient traders might wait for an attempt on that and then sell the move as and when it stalls.
Source http://www.fxstreet.com/technical/analysis-reports/daily-strategic-report/2011-11-22.html
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