Market participants have been buying currencies post FOMC, with the Australian Dollar leading the way on favorable yield differentials and a sounder appetite for risk. The relative outperformance in the Aussie has also been fueled by some M&A related activity with China’s Yanzhou Coal agreeing to buy Australia’s Felix Resources.
MORNING SLICES
Fundys – Market participants have been buying currencies post FOMC, with the Australian Dollar leading the way on favorable yield differentials and a sounder appetite for risk. The relative outperformance in the Aussie has also been fueled by some M&A related activity with China’s Yanzhou Coal agreeing to buy Australia’s Felix Resources. On the data front, the Euro managed to extend gains on the much better than expected French and German GDP numbers, with the broader Eurozone GDP reaffirming the strength of the data. Elsewhere, Swiss producer and import prices came in slightly weaker but failed to materially factor into price action, with the Franc driven on broader global macro fundamental themes. In Japan, some attention was given to the opposition party after the DPJ talked of tolerance for the strong Yen. Looking ahead, the calendar is stacked with the key data release coming in the form of advance retail sales (0.5% expected) in the US due at 12:30GMT. Also out at 12:30GMT are initial jobless claims (540k expected), continuing claims (6350k expected), and the import price index (-0.5% expected). Business inventories (-0.9% expected) follows shortly after at 14:00GMT. US equity futures point to a strong open by some 1% higher, while commodities are also very well bid, led by crude oil up over 2%.
Techs - EUR/USD continues to rally after finding a low just ahead of the 50-Day SMA on Wednesday with gains extending back towards 1.4300. The key levels to watch above will be the 61.8% and 78.6% fib retracements off of the latest moves with any gains beyond 1.4370 negating hopes for a resumption if USD gains and exposing a direct retest of the recent 2009 highs by 1.4450. Below 1.4180 required to shift focus back on downside. USD/JPY locked in an inside day with the market confined to the previous daily range thus far. Look for a break above 96.75 or back below 95.10 for clearer bias. GBP/USD (See below). USD/CHF gains have stalled out ahead of 1.0900 and the market is in the process of retreating back into the middle of a very well defined multi-week range. Key levels to watch over the coming session come in by 1.0795 and 1.0700.
Flows – Funds and CTAs buying Cable. Option expiries in Usd/Cad at 1.0825, 1.0925, and 1.1000. UK clearer demand for Eur/Gbp. Aussie benefitting from some positive M&A related flows with China. Asian accounts cross yen bids. Exporter offers in Usd/Yen.
Trade of the Day – Gbp/Usd: The doji close and outside day on Wednesday have signaled some form of an end to the latest sharp setbacks with the market rebounding into Thursday to trade just over 1.6600 thus far. At this point it now becomes more difficult to assess whether the latest pullback off the 1.7045 yearly highs from the previous week was merely a minor correction, or whether we have put in a more meaningful top by 1.7045 and are looking to head lower over the coming days and weeks. We will adopt the latter theory today and assume a USD bullish outlook, with the hope that any additional rallies intraday will once again be met with good selling pressure. However, without any strong conviction, we also recommend playing this on the conservative side and only looking to sell on an extreme intraday rally back above 1.6700 to the 50% retracement off of the latest moves. At that point, even if the market does decide that it wants to continue higher, any additional gains on Thursday should be limited from there which should give us an opportunity to exit the trade if no follow through is seen. [B]STRATEGY: SELL @1.6715 FOR AN OPEN OBJECTIVE, STOP @1.6915. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON THURSDAY.
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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 was been created in June to track and mirror all recommendations and trades. Below is a return on equity curve since inception on June 1, 2009, along with an open and closed position tracker. I am hopeful that this will make things easier for you all.
Additionally, please feel free to check out a [B]full profit and loss statement since inception on June 1, 2009[/B].
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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