The USD has once again found favor in the overnight session, this time against all currencies, and once again, it remains to be seen whether the recent recovery rally can indeed be sustained. Recent price action suggests the buck might once again find offers, but given stretched technicals, a pullback in equities and drop in gold prices, Friday’s session could prove different.
[B]MORNNING SLICES (Abridged)[/B]
[B] Fundys –[/B] The USD has once again found favor in the overnight session, this time against all currencies, and once again, it remains to be seen whether the recent USD recovery rally can indeed sustain itself into the US market. Recent price action would suggest that the buck might once again find selling in the US, but given the stretched daily studies, pullback in equities and drop in gold prices, Friday’s session could prove different, with many North American traders content on finally booking some profits on existing USD shorts. The New Zealand Dollar has held up the best against the greenback, while the Loonie, its commodity cousin, has fared the worst. Sterling also remains under pressure with the single currency notably extending declines against the Euro and Aussie on Friday. The Sterling/Aussie cross has dropped to fresh 20+ year lows, while Euro/Sterling has broken back above psychological barriers at 0.9000. Overnight data was mostly second tier, with UK public finances continuing to deteriorate albeit at better than expected levels. BoE Miles did not helping Sterling’s cause after saying that while the UK may be out of a recession, any recovery would be very slow. More downbeat comments came from Riksbank’s Ekholm who said that rates would remain at very low levels in Sweden for a long time. More sour comments from Russia PM Putin who said that it was a mistake to think that the global crisis was over. Many officials were on the wires with unrelated currency talk. EU Almunia was out talking currencies and the USD, after saying that the Euro was not a good reserve currency option for China and that there was no viable replacement for the USD as a reserve currency. China’s central banker Hong also talked currencies after saying that the Aussie acted as a proxy for the Yuan. Finally, Japan’s FinMin Fuji said he did not want to be labeled as backing a strong Yen, but also conceded that any manipulation of currencies was not productive for the global economy. Looking ahead, the calendar is extremely light, with the only economic release coming out of Canada in the form of wholesale sales (0.9% expected) due at 12:30GMT.
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Trade of the Day – Gbp/Aud:[/B] We continue to look for opportunities to buy this beaten down cross with the market at 20+ year lows and now stalling just shy of the critical lows by 1.8740 from May 1996. Not only are daily studies tracking oversold at this point, but weekly studies are also unhealthily overextended and show the need for a major upside reversal and mean reversion. The closest SMA right now comes in the form of the 10-Day which trades much higher by 1.9100. The market moves on average some 200 points a day so we will use a wider stop-loss to leave the appropriate amount of room for the trade to be able to materialize. If the market gets going in our desired direction, there is tremendous upside potential. [B]POSITION: LONG @1.8835 FOR AN OPEN OBJECTIVE, STOP @1.8585. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE ON FRIDAY.[/B]
[B]Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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