Currencies Consolidate in Lightened Holiday Trade

Although the markets haven’t moved all that much overnight, the direction continues to be one which favors the USD, as the Greenback shows gains against all major currencies thus far on the day.



Although the markets haven’t moved all that much overnight, the direction continues to be one which favors the USD, as the Greenback shows gains against all major currencies thus far on the day. We do not expect to see a normal day of trade on Monday, with the European calendar bare and many traders off the desks for the Presidents’ Day holiday in the US and Family Day holiday in Canada. Nevertheless, risk aversion seems to be at the center of investor minds in light of the latest China reserve requirement tightening, ongoing concerns over Greece and the stability of the EU, and now renewed fears in the Dubai debt markets.

[B]Relative Performance Versus USD on Monday (As of 8:35GMT) –

  1. AUSSIE -0.01%
  2. KIWI -0.03%
  3. CAD -0.06%
  4. STERLING -0.08%
  5. EURO -0.15%
  6. YEN -0.17%
  7. SWISSIE -0.19%[/B]

The key focus in Monday’s session will undoubtedly be the commencement of the EU Leaders Summit, as many are anticipating some form of a formal bailout announcement for Greece. ECB President Trichet has recently said that Greece must take all appropriate measures to fix its budget deficit and that scrutiny of its economic indicators must be heightened. Elsewhere, headline preliminary GDP in Japan has come in better than expected, although the data has been played down by the Chief Cabinet Secretary who says that economy remains in a severe state. In Switzerland, PPI has come in slightly firmer than consensus estimates.

Looking ahead, there are no economic releases scheduled for the remainder of the day, with markets seen trading off of broader global macro themes. US equity futures trade with a heavier tone, while commodities are flat.




EUR/USD: It is difficult to determine where we go from here in the short-term, with the market seemingly caught in some choppy bearish consolidation, but also at risk for a bounce given the oversold technical studies. We do however retain a bearish bias and would look for the 10-Day to continue to cap gains ahead of a renewed bout of weakness through 1.3530. A close back above the 10-Day SMA would however delay and open the door for additional corrective gains potentially towards 1.4000 before bearish resumption.

USD/JPY: The violent pullback from several days back certainly dents our outlook in which we had been projecting significant upside over the medium-term. However, the market has still not managed to close below 89.00 and it will be interesting to see how things play out from here. In some ways, the recent whipsaw price action makes it a little easier to call. A break back below 88.55 will confirm bearish resumption, while above 91.30 should accelerate gains to the topside and put the constructive outlook back in play. Until then we remain sidelined.

GBP/USD: The market has finally taken out the key October lows just over 1.5700 to likely open the door for some medium-term setbacks over the coming weeks. However, daily studies are now looking quite stretched and there is a risk for some choppy consolidation before any renewed weakness. The 10-Day SMA comes in just over 1.5700, and we would expect to see any rallies well capped by the latter in favor of a bearish resumption. Only a close back above the 10-Day would delay outlook.

USD/CHF: The latest break back above 1.0500 suggests that the market has now carved out a major base that exposes some fresh medium-term upside towards 1.1000 over the coming days. However, given the intensity of the run-up over the past few days from 1.0200 towards 1.0800, a short-term corrective pullback and consolidation can not be ruled out. Nevertheless, we would look to use any dips into the 1.0500 region as a formidable opportunity to build on existing longs in anticipation of a fresh higher low.


Semi-official and German bank demand for Eur/Usd. Rumors of UK name selling 2 yards of Gbp/Usd weighs on Gbp/Jpy and bolsters Eur/Gbp before some model and leveraged names reverse the price action and bid Sterling back.


No Trade: Holiday session leaves us sidelined and not looking to increase exposure as we are already long Eur/Cad.


P&L Update and Overview: Many of you have been asking for a way to better track trading results and open positions. In response to these requests and in an effort to be fully transparent, a simulated portfolio has been created to track our results on a daily basis. We are pleased to announce that our model generated returns of 50% in 2009. The return on equity curve seen below has now been reset for 2010.

Written by Joel Kruger, Technical Currency Strategist for
If you wish to receive Joel’s reports in a more timely fashion, e-mail
[email protected] and you will be added to the “distribution” list.

If you wish to discus this topic or any other feel free to visit our Forum page