Yen Gives Back Gains But Still Outperforms (Morning Slices)

MORNING SLICES

Fundys – Although data overnight was on the whole better than expected with solid Eurozone inflation readings and impressive Norwegian retail sales, the market seemed to be focused on broader global macro sentiment with some increased risk aversion forcing a liquidation of cross Yen related trades. The strong appreciation in the Yen was also said to be driven off of the landslide victory for the DPJ. Elsewhere, UK Chancellor Darling announced that the UK will provide an additional $11B to help boost IMF resources, while German FinMin Steibrueck warned that recent policy measures to stabilize the global economy should be reduced as soon as possible. Steinbrueck went on to stress that the G20 nations should coordinate their exit strategies. Finally, Fed Dudley was on the wires overnight with some comforting words after saying that the US could withdraw stimulus measures without allowing inflation to set in. Although the Yen has given back much of its earlier gains, the single currency still remains the strongest on the day, while the Canadian Dollar lags. Sterling has also come under pressure but volumes are lighter given the UK bank holiday. US equity futures point to a much lower open, led by the Nasdaq, down by 0.70%, while crude oil is also under pressure down by some 2%. Looking ahead, all eyes will be focused on Canada GDP (-3.0% expected) due at 12:30GMT, with Chicago PMI (48.0 expected) following at 13:45GMT and Dallas Fed manufacturing (-15 expected) at 14:30GMT.

Techs - EUR/USD latest rally has stalled shy of the recent yearly highs by 1.4445 and the market appears to be in the process of once again rolling back over. A break below 1.4210 will however be required for confirmation, with an acceleration expected back towards the 1.4000 area. However, inability to take out 1.4210 will keep the pressure on the topside and not rule out the potential for a retest of the 2009 highs. It is also worth noting that the 50-Day SMA by 1.4150 continues to support the market on a medium-term basis, so a break and close below the 50-Day will also help to generate fresh sell interest. USD/JPY (See below). GBP/USD locked in some short-term bearish consolidation with the market pressing lower thus far on Monday and looking like it wants to retrace back towards psychological barriers at 1.6000 which also coincides with the 100-Day SMA and recent multi-day consolidation lows from early July. Below 1.6155 should now accelerate the drop back towards 1.5980-1.6000 over the coming sessions. Back above 1.6375 however will negate and delay bearish outlook. USD/CHF continues to chop around within a very well defined multi-week range with the price currently residing at the lower end of the range. Recent price action has been constructive however, after the latest break to fresh 2009 lows at 1.0530 in the previous week was short-lived. Look for Friday’s bullish doji close followed by Monday’s break back above 1.0615 to now spark some fresh upside with the market to likely appreciate back into the mid range and towards 1.0700. Only a close back below 1.0500 will negate and give reason for pause.

Flows – US bank offers in Usd/Cad. CTAs and short-term spec accounts selling Usd/Jpy and Yen crosses.

Trade of the Day – Usd/Jpy: First day back from holiday so we won’t look to get too aggressive here. However, the pair has come under some intense pressure over the past several days with setbacks accelerating into the early week. The market has already met its daily average true range and with the 78.6% fib retracement off of the 91.75-97.80 move now being exceeded, next key support comes in by the medium-term 91.75 low from July 13. But any dips below 92.00 should be limited with the market well supported at 91.75, and as such, we will look to take advantage of an oversold intraday chart for a very playable counter-trend move. STRATEGY: BUY @92.05 FOR AN OPEN OBJECTIVE, STOP @90.55. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON MONDAY.

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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“Indicator of the Day”A Feature Report that Highlights our Most Significant Technical Indicator of the Day.
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