Currencies Content on Consolidating in Lightened Holiday Trade (Morning Slices)


Fundys – Markets are extremely thin on Monday, with the UK Spring bank holiday and US Memorial Day leaving many traders at home. Much of the session thus far has been dominated by some broad based profit taking on USD short positions, with the Greenback tracking higher against all major currencies on Monday. The Swiss Franc has been the relative outperformer, while the Canadian Dollar is the weakest. In additional to some profit taking, Usd/Jpy also managed to find some bids overnight on the news of more [B]nuke tests[/B]out from North Korea. Also in Japan, FinMin Sugimoto was heard with a more downbeat assessment on the economy, sharply contrasting the upgraded view from the Bank of Japan in the previous week. On the data front, the only significant release overnight came from the Eurozone, with German IFO figures coming in weaker than expected, with the only encouraging component coming from the expectations reading, which did slightly beat consensus estimates. EU Almunia says that banks in the Eurozone are more in need of capitalization than banks in US, but also concedes that no additional stimulus measures are needed. ECB Weber says that the economic decline in Germany and the Eurozone is easing and that rates at current levels are appropriate. Oil has been getting some attention on Monday with the Saudi Oil Minister talking up the longer-term price of the commodity, while IMF Lipsky takes a different outlook, saying that the current bounce in prices is expected to be modest. Global equities have all tracked lower on the day, while on the commodity front, both oil and gold are lower as well.

Techs - EUR/USD showing sings of a pullback on Monday with gains failing to extend beyond Friday’s 1.4050 multi-day highs. Key levels to watch above and below come in by 1.4050 and 1.3890 respectively. Daily studies are overbought and the shorter-term risks are for a pullback over the coming days. USD/JPY starting to show signs of a potential base by 93.85 with the market failing to break lower on Monday and managing to take out Friday’s highs at 94.90. Key levels to watch over the coming session come in by 95.50 and 94.40. GBP/USD (See below). USD/CHF setbacks stalling out for now after managing to take out the 1.0865 support from January on Friday. The pair seems to be well supported above 1.0800 for now with key levels to watch over the coming session by 1.0940 and 1.0800.

Flows – Option barriers in Aud/Usd at 0.7900 and 0.8000. Decent stops reported in Eur/Usd below 1.3950.

Trade of the Day – Gbp/Usd:
We are not inclined to take any positions on the lightened holiday trade and will only establish a trade if it is essentially gift wrapped. Holiday trade can be very tricky and dangerous with the lack of any real volume or liquidity making it easier to push markets in either direction. However, with the USD now showing oversold across the board, we anticipate some material corrective price action into this week. Daily studies in this pair are highly overbought and track well above 70.0 on the RSI. A break back below 1.5755 would now be required to open the door for a potential reversal. Our strategy nevertheless will to be look to sell on a rally to fresh highs rather than on a downside break of 1.5755. Yearly highs have been set by 1.5950 on Friday and we still see scope for a push back above critical psychological barriers at 1.6000. But any rallies above 1.6000 are not seen as sustainable and should the market break back above this barrier today, we will be looking to sell. Strategy: SELL @1.6020 FOR A 1.5500 OBJECTIVE, STOP @1.6220. Stops to be trailed to cost on a break back below 1.5950. Recommendation to be removed if not triggered by NY close on Monday.

Written by Joel Kruger, Technical Currency Strategist for
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