Forex Journal

News and Events:

EURUSD clawed back some of its looses in Asian trading; a function of a lack of news rather than any development which supported Forex risk taking. EURUSD traded up to 1.4087 from 1.4002 while USDJPY remained stuck in daily cloud cover around the 81.60 to 82.00 area. EURCHF fell to all time lows at 1.2323, partially aided by SNB Vice Chairman Jordan comments. Jordon started that he remained concerned over the CHF’s rapid rise and would take appropriate steps if deflation risks were to emerge. He went on to say that rates could stay low for longer; so long as inflationary risk remained contained. While the SNB is still very concerned over the bubble in real-estate they are not in a position to hike rates and provide traders with an interest rate incentive for holding CHF. We suspect that the SNB will be happy to stay on the side lines until late in 2011, however we suspect that SNB members will provide some headline grabbing hawkish comments to restrain expectations.

In New Zealand, the RNBZ raised their 2 year inflation forecast to 3.00% from 2.6%, which places the number at the upper end of the central bank’s inflation target. Traders clearly took this adjustment as a signal that the RBNZ cannot sit around on monetary policy, and now have priced nearly a full 25bp hike by year’s end, while NZD bulls drove NZDUSD up to 0.7975.

With the G10 calendar very light today markets will continue to focus on events in the Eurozone. Yields on European peripheral government debt continues to rise as the only news filtering through yesterday was negative. Greek Finance Minister Papaconstantinou implied that should Greece not receive its next IMF quarterly funding tranche it would default, and that the IMF would not act unless Greece had support from the EU. There was more bad news from the credit rating agencies as Fitch affirmed Belgium’s at AA+ but dropped the outlook to negative from stable. The agency cited the increased political risk which could force the nation to miss official deficit targets. Perhaps the cherry on the cake was the comment by EU's Rehn, who said we have "contained but not banned" risk of financial meltdown, a statement that provided little comfort to the markets.

Today there is a relative calm over the market, giving risk correlated trades room to move higher. Gold is now above $1515oz while oil is up $2 to $98.80/barrel. European regional indices are marginally up and US futures are pointing to a higher open. We would be careful engaging in any directional trades since the core driver remains random events in Europe. Our baseline scenario is that the EU / IMF will cough up the cash to bailout Greece rather the allowing any “reprofiling”, and given the rapidly approaching deadline for Greece default, they need to act fast. 

Today Key Issues:

• 08:00 NOK GDP (Q1)
• 08:30 GBP Public Finances (PSNCR) (Apr) GBP bn
• 08:30 GBP Public Sector Net Borrowing (Apr) GBP
• 10:00 GBP CBI Reported Sales (May) index
• 11:00 GBP BoE' Releases Paul Fisher's Remarks
• 12:25 USD Fed's Duke Speaks
• 13:50 USD Fed's Hoeing and Plosser to Speak
• 14:00 USD New Home Sales (Apr) lvl
• 17:20 USD Fed's Bullard Speaks

The Risk Today:

EurUsd As predicted by the bearish engulfing pattern on the daily chart, EURUSD was weighed by heavy selling pressure yesterday, touching a low of 1.3970 before managing to recover above 1.4000. The location of the bounce is perhaps unsurprising, considering the near proximity of both the 1.3980 support (17-18 Mar lows), and the 100-day moving average (currently 1.3973). There now appears to be a fundamental lack of drivers to push EURUSD in one direction or another (German GDP today was exactly in line with forecasts), but we prefer to maintain a bearish bias so would start to scale into short positions back towards 1.4250. Support from here now stands at yesterday’s 1.3970 low, followed by 1.3950-55 (currently downtrend support), 1.3856 (15 Mar low), 1.3744 (2 Mar low), 1.3705 (24 Feb low) and 1.3677 (200-day moving average). Key resistance levels stand at 1.4346 (20 May high), 1.4441 (9 May high), 1.4500 psychological resistance, 1.4588 (6 May rebound high) and 1.4764 (former support last seen in early May).

GbpUsd Yesterday, we expected the prevailing bearish sentiment to force GBPUSD to challenge the key 1.6092 support (5 Apr low) and overnight the pair not only tested that support, but broke straight through to lows of 1.6060. We have now taken profit on our short positions around 1.6100 (originally entered back between 1.6250-70), and wait for a rebound back above 1.6200 before we re-load. Resistance is seen today at 1.6250-55 (upper edge of the current 3-week downtrend channel) so that would act as our trailing stop loss. Further resistance is eyed at 1.6309 (13 May high), 1.6380 (12 May high), 1.6517 (11 May high), and 1.6574 (4 May high). On the next push to the downside, supports are seen at 1.6060 (overnight low), 1.6000 (psychological support), 1.5973 (1 Apr low), 1.5937 (28 Mar low) and the hugely significant 200-day moving average 1.5938.

UsdJpy USDJPY bounced well off the lower edge of its 3-week uptrend yesterday, and is currently poised just below 82.00 levels. Although the upside momentum is pretty weak, the uptrend channel remains valid and therefore expect buyers to materialize around 81.40-45 today to keep the pair elevated. Key resistance levels above stand at 82.24 (19 May high), 82.65-70 (upper edge of current uptrend channel), 82.70-78 (200-day moving average and 27 Apr high), 83.26 (18 Apr high), and 83.79 (15 Apr high). If at any point the trendline support is negated, then watch for next supports to come into play around 81.33 (yesterday’s low), 80.95 (18 May low), 80.16 (10 May low), 79.57 (5 May low), 78.26 (17 Mar low), and the all-time low 76.40.

UsdChf Very difficult price action for us USDCHF bears in the past 24-hours, as yet another short squeeze took us up to highs of 0.8893 during the Asian session. We are short at 0.8800 playing the head & shoulders pattern on the hourly chart, and are aiming for a target on the downside of approximately 0.8660. Despite the retracement back to 0.8820 levels, this latest squeeze does dent our confidence in the validity of the pattern, so will now implement a stop at 0.8850 to limit losses in case of another bullish surge. On the topside, next resistance comes into play at 0.8893 (today’s high), followed by 0.8941 (16 May high), 0.9011 (19 Apr high) and 0.9105 (11 Apr high). Supports stand at 0.8748 (Friday’s low), 0.8708 (10 May low), and 0.8676 (6 May low). Below our 0.8660 target the only support remaining will be the all-time low 0.8554 (recorded on 4 May).

ACM FOREX

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