FOREX SPECIAL :-
If you haven’t already, it’s time to go enjoy the family and friends, because absolutely nothing even close to significant should happen from here into the close on Friday, and if anything does happen, you probably won’t want to be involved. To go over developments in recent trade, the Yen has made a bit of a comeback over the past 24 hours, although with the market still holding above 82.00, it is hard to say that we have really gone anywhere at all, with the broader multi-day consolidation still intact. Meanwhile the Swiss Franc has finally relented a bit, after Usd/Chf failed to take out the 0.9460 record lows from October. There has been no confirmation of any central bank activity, but the resulting price action has set up bullish outside days in Usd/Chf and Gbp/Chf (off of record lows), and a bullish reversal day in Eur/Chf (also off of record lows).
Despite recent efforts from the European Central Bank to restore confidence in the Eurozone, with some of these beleaguered local economies’ bond yields remaining elevated, the market is still not showing too much confidence. Additionally, the move by the Fed to extend Dollar supply to Europe is also a good sign that liquidity risk has not softened. As such, we continue to risks for additional Euro weakness over the coming days, with a retest and break below the recent lows by 1.2970 very realistic. The Euro has however been somewhat supported in recent trade following S&P’s move to affirm France’s AAA rating with a stable outlook.
The Australian Dollar has given up some of its relative strength over the past day, but on the whole, remains very well bid. However, we continue to hold the opinion that this is a currency which has outdone itself and should be due for a major across the board pullback over the coming year. Our favorite trade for 2011 is Long EUR/AUD, with the cross trading by multi-year lows, technically violently oversold and screaming for a major trend reversal.
Back to the topic of the Yen, according to a recent Reuters report, Japan is expected to raise its FX intervention fund limit by an additional 5Trln to 150Trl Yen total into the next fiscal year which begins in April. While the move by no means confirms that additional action will be taken, it certainly sends some form of a message to market participants that they should be careful of buying Yen going forward.
If we take a look at the Eur/Usd monthly chart, it looks as though the market will close out the year right around levels that were seen at the start of 2009. A very significant bearish outside month in November of 2010 now likely signals a longer-term lower top by 1.4285, with a break back below the 2010 low at 1.1880 to confirm the lower top and open some fresh downside. As such, we still see plenty of downside risk for the Euro over the coming months with a move back below 1.2000 seen as a very realistic possibility. Ultimately, a break back above 1.4285 will now be required to negate the longer-term bearish structure.
There is nothing on the economic calendar for Friday and we would expect to see all currencies consolidate by their respective closing levels on Thursday. Just an additional heads up that The Australian and New Zealand markets are closed on Monday and Tuesday for Christmas break. We wish each and every one of you a very special, happy, meaningful, and healthy holiday, and very much look forward to the year ahead. Thank you all so much for your continued support.
TECHS
EUR/USD:The market has mostly been locked in a choppy consolidation over the past several days, but a lower top looks to have carved out by 1.3500, with a break back below 1.2970 over the coming sessions to confirm and open the next major downside extension towards the 1.2585 platform base from August 2010. As such, any intraday rallies towards the 1.3300 area should be used as formidable sell opportunities.
USD/JPY:Despite the latest pullbacks below 83.00, the market still remains confined to a broader consolidation, and while the price holds above the bottom of the Ichimoku cloud, the overall outlook remains constructive with dips towards 82.00 to be used as compelling buy opportunities. A break and close back above 84.50 will however be required to end what is perceived to be a bullish consolidation and accelerate gains. A close below 82.00 on the other hand, would compromise outlook and give reason for pause.
GBP/USD:The market remains under pressure and now seems poised for a retest of the platform base from early September at 1.5295. Daily studies are however looking a little stretched so we would not rule out the possibility for a bit of a bounce over the coming sessions towards the 1.5700 area from where a fresh lower top will be sought out ahead of an eventual drop to challenge and break 1.5295. In the interim, we remain sidelined and await a clearer signal.
USD/CHF: Setbacks have most recently stalled out just shy of the record lows by 0.9460 from October, and with daily studies looking a little stretched, we would expect to see any additional declines very well supported in favor of a major bullish reversal. Cyclical studies continue to warn of a major trend shift at current levels, and a bullish outside day on Thursday after failing to establish fresh record lows, could very well act as the initial catalyst for said reversal. Look for a break back above 0.9735 to confirm and accelerate gains. A break and close back below 0.9460 delays.
Written by Joel Kruger, Technical Currency Strategist
