- Euro still well bid on IMF and solid auctions
- Technical studies showing bullish weekly reversal
The Euro is looking to mount
its first major short-term correction in several weeks, with the market
attempting to establish back above the previous weekly highs by 1.2880.
Market participants have found some renewed confidence in the single
currency despite all the troubles in the region with the news that the
IMF will be looking to offer another $1Trillion in aid and some very
well received auctions out of Spain and France seen as the primary
drivers for the renewed bid tone. Technical studies have also been
warning of the need for some form of a bounce in this market, and
although we continue to see the broader risks tilted to the downside, we
would still not rule out the potential for this rally to extend over
the coming days into the 1.3200-1.3500 area before underlying bear trend
resumption.
While at this point it is
still way too early to make any serious calls, we have been projecting
relative underperformance in the commodity currencies over the coming
months as the fallout from the global recession spreads. Our view from
the start of the recession has always been a 3 phase recession view
which originated in the United States, spread to Europe, and will soon
move on to China, the commodity bloc economies and emerging markets.
Although these phase three economies have slowed in the face of the US
and Eurozone slowdowns, in our opinion, the intensity of the recession
has not been fully realized in these regions. As such, we project
relative underperformance in these economies even against the Eurozone
going forward and look for crosses that have recently posted multi-year
and record lows, like EUR/AUD and EUR/NZD to soon aggressively reverse
course.
Data out of China has been
less and less encouraging of late, while both Australia and New Zealand
produced some extremely discouraging economic data this week, with
terrible employment and much softer CPI respectively. With markets, it
is also always about what has been priced in and what has not been
priced in rather than what actually is at present. We believe that as
bad as things are in the Eurozone, there is very little room for
additional downside as most of the bad has been priced in, while in
Australian and New Zealand, there is still a good deal of downside risk
that has not been appropriately priced into markets.
ECONOMIC CALENDAR
TECHNICAL OUTLOOK
EUR/USD:
The market has finally managed to find some bids and although the
broader underlying trend remains intensely bearish, the risks from here
are for additional corrective gains back towards the 50 and 100-Day SMAs
in the 1.3100-1.3400 area before the next lower top carves out. Some
falling trend-line resistance has already been broken on the daily chart
and the 10-Day SMA looks to be on the verge of crossing back above the
20-Day SMA to provide added confirmation for short-term bullish
structural shift. Setbacks should now be well supported ahead of 1.2750,
while only back under 1.2620 negates short-term bull bias.
USD/JPY:Despite
the latest pullbacks, we continue to hold onto our constructive outlook
while the market holds above 76.55 on a daily close basis. We believe
that any setbacks from here should be limited in favor of a fresh upside
extension back towards 79.55 over the coming weeks. Look for a break
above 78.30 to confirm and accelerate, while only a daily close below
76.55 negates and gives reason for pause.
GBP/USD:
The market has mostly been locked in some sideways chop over the past
few weeks with any rallies very well capped ahead of 1.5800 and setbacks
supported on dips below 1.5300. Until either side is convincingly
broken, we would expect to see additional range trade. Therefore the
preferred strategy is to look to buy range dips and sell by range highs.
Only a weekly close above 1.5800 or below 1.5250 would give reason for
outlook shift.
USD/CHF:
Although our overall outlook remains intensely bullish, the market is
in the process of some interday consolidation before the next major
upside extension beyond 0.9600 and towards parity. As such, from here,
we see risks for additional setbacks towards 100-Day SMA by 0.9100 from
where a fresh higher low is sought out. Ultimately, only a sustained
break back under 0.9000 would negate constructive outlook and give
reason for pause. Dips towards the psychological barrier should
therefore be used as formidable buy opportunities.
Prepared by: Zeshan Muhammad Ali Awan
