USD Gains Overnight Easily Wiped Clear on More Talk of Diversification (Morning Slice

Any USD gains seen overnight have been wiped clear as we get set to start the US session of trade. This has been a pattern that we have seen throughout the broad based USD weakness with a consistent “sell USD on rally” mentality dominating broader price action, even at current USD oversold levels.


Fundys – Any USD gains seen overnight have been wiped clear as we get set to start the US session of trade. This has been a pattern that we have seen throughout the broad based USD weakness with a consistent “sell USD on rally” mentality dominating broader price action, even at current USD oversold levels. The wave of USD selling this morning comes on the back of Geithner comments, in which the Treasury Secretary reaffirmed China’s commitment to the USD as its reserve currency. However, it seems as though these comments have investors more focused on the fact that Geithner needs to reaffirm China’s commitment and the potential for diversification still into other currencies. Talk from Russia of the topic of the USD at the upcoming BRIC summit has helped to fuel additional USD selling. On the data front, Eurozone unemployment was less than impressive after coming in higher than expected and reaching a near 10-year high. In the UK, data was more encouraging after UK mortgage approvalsand consumer credit were better than expected, while net lending to housing came in bang on consensus. The UK Gilt auction was also better received than had been anticipated. There was some Sterling negative news however, after Abu Dhabi announced the sales of its stake in Barclays. In Switzerland, [B]GDP[/B] data was mixed, with the quarterly coming in better than expected, while the annual was weaker. The annual rate caught more attention however, after showing the largest decline in 15 years. Meanwhile, Swiss manufacturing PMI was consistent with the broader PMI data out of Europe and the UK this week, after coming in much better than expected. On the commodity front, oil has been weighed down overnight after OPEC’s head of research said that oil prices could fall again following the latest rally and that fundamentals were still very weak. Looking ahead, it will be an interesting session of trade with many waiting to see if the USD will undergo yet another wave of selling and force fresh 2009 lows in many of the major currencies. The Yen and Canadian Dollar have been the strongest currencies on the day, while Sterling has been the relative underperformer. Aussie sits somewhere in the middle but has managed to break to another 2009 high this morning after triggering stops above 0.8155. Aussie strength is somewhat questionable after the RBA suggested that they could be looking to cut rates on deflation concerns. US pending home sales (0.5% expected) are due at 14:00GMT. US equity futures point to a flat open, while commodities are also going nowhere.

Quant –

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Techs - EUR/USD (See below). USD/JPY remains locked in some choppy sideways trade with key levels to watch above and below by 97.25 and 93.85. No clear directional bias at current levels. GBP/USD has now retraced to the 38.2% fib retrace off of the major multi-year high-lows and we would expect to see some form of capitulation at current levels in light of the major retracement level. Finally, the daily RSI has broken above the 80 level which is now severely overbought and warning of a much needed and healthy corrective pullback. We will be looking for an RSI move back towards 70 over the coming days. USD/CHF market could be looking for a much needed and healthy corrective rally, after finally trading down to 30 on the daily RSI. Setbacks on Monday stalled out just shy of the 2009 lows by 1.0610 and the market has since recovered back to daily opening levels by 1.0670 to potentially set up a doji close. Look for today’s break back above 1.0725 to accelerate gains and confirm short-term basing, while below 1.0610 opens deeper setbacks towards next key support by 1.0370, the late December lows.

Flows – Asian central bank demand for Eur/Usd. Uk clearer demand for Cable; US prime name on the offer. Sovereign bids in Aussie.

Trade of the Day – Eur/Usd: Could finally be showing signs of a top with the daily RSI recently crossing above 70 and the market reaching the 78.6% fib retracement off of the major 1.4720-1.2455 move at 1.4235 on Monday. Yesterday’s bearish doji close reaffirms prospects for a short-term top and as such we have gone short (as per our recommendation in Monday’s Daily Classical) in anticipation of a more significant pullback over the coming days. Look for a break below 1.4100 over the coming hours to accelerate declines and open deeper setbacks towards initial support by the 10-Day SMA at 1.3990, which guards against our 1.3930 objective. Only back above 1.4250 negates and gives reason for pause. Position: SHORT @1.4145 FOR A 1.3930 OBJECTIVE, STOP 1.4260.

Written by Joel Kruger, Technical Currency Strategist for
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Quant section prepared by David Rodriguez, Quantitative Strategist for
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