Dollar Majors update – 12.02.14

EUR traded on the topside 1.3680 and offered up strong resistance and capped several attempts to break higher yesterday whilst on the downside you have 100dma at 1.3612 ahead of the 1.3600 handle. It has broken those levels and is testing the next support at around 1.3550. We are looking at the downside to 1.3477  if it does break or going back up to 1.3680 if the level holds. It seems like it is now range trading and you have to be looking to either pick the top or the bottom. It is in mid range now but if you are looking for 30-50 pips here and there you can play around on the break or hold of the weaker resistance. If it breaks that important levels are at 1.3477 and then 1.3295.  EUR came off across the board beacuse of the weaker than expected Industrial Production data out of the Eurozone for December. The November IP print was also revised to the downside.  The disappointment could add to concerns ahead of the Q4 GDP number on Friday and may weigh on EUR-crosses some more.Comments by the ECB Executive Board member Coeure that the bank is seriously considering negative deposit rates also added to the headwinds for the single currency. The comments could be seen as a departure from President Draghi’s remarks last week about a very broad discussion of policy instruments at the February ECB meeting.Later today, President Mario Draghi will deliver a keynote address at the Conference for the 20th anniversary of the establishment of the European Monetary Institute entitled, “Progress through crisis?” It is unclear whether there will be a Q&A after the speech. That said, investors will focus on the event looking for indications that more easing maybe coming going into the March ECB meeting.  More Eurozone data disappointments ahead and dovish signals from the ECB officials could keep cyclical headwinds for EUR in place for now. We continue to expect more downside for EURGBP from current levels. Absent significant disappointment from the US retail sales tomorrow, EURUSD dip could gain momentum in the near term.

CABLE has gone up to a key support, held and is now trading back up at it. As mentioned yesterday you have to look for a break of the tight range it was in and we got in at 1.64500. We are now waiting for a clear break of 1.6500 (being 100 pips onside) up to 1.66700 or taking our position off if the level holds. Cable rallied today on optimistic QIR. Here is some information on that report:

In the February quarterly inflation report, BoE revised up the growth projection significantly but revised down their inflation forecast. Carney says recovery has gained momentum, and forward guidance is working, and he sees scope to keep 0.5% rate after jobless threshold hit.

GBP seems to be stabilizing around 1.6520 for the time being. Turnover has been somewhat light post the release and at the moment our GBPUSD flow has no bias.

Key points –

·       No change in rate guidance

·       Unemployment falling to 7% in the quarter through January.

·       Economic growth at 3.4% in 2014 versus 2.8% in the November report, and 2.7% in 2015 versus 2.3% prior.

·       CPI at 1.7% in Q2 2015 based on market rate expectations, and at 1.9% in 3 years.

·       Productivity growth has been disappointing

·       Greater slack in labor market than we expected

What this means is that BoE wants to keep rate expectations in check for now. This could be good for the GBP with stronger growth and lower rates, in order to support recovery. So we now have a clear bullish trend for Cable. Be careful though as there might be a retracement of anything up to 150 pips. Make sure if you are entering the market now to wait for the clear break of 1.65500 (it is now a few pips above it. Wait for a clear confirmation though) and use short stop losses and then enter at a better level. Cable is now slap bang in the middle of this year’s 1.6252 to 1.6668 range. We recommend buying Cable on dips.

Shocking machine orders out of Japan overnight came in at -15.7% down from a +9% gain in November which further aided cross yen higher although USDJPY remains anchored around the 102.50 region having reached a high up at 102.70. We need to see a break of this before heading to test the 103 handle, whilst on the downside 102 remains well supported. We believe that USDJPY will be above the 102 mark and our outlook is bullish. It is still trading in the right range between 102 and 103 for now. So it is range trading here for now.

The bounce continues in AUD after no surprise from Yellen yesterday and a better Chinese trade surplus overnight. AUD has now decisively broken through 0.90 taking on its way a rumoured barrier at 0.9050. There is decent demand towards the 0.90 level and it has bounced back up to 0.90500 now. We have added another position at a cross of 15 minute 0.9060 and wanted to take it off after picking up 40 pips but held it because of the news from the IMF:

The Sydney Morning Herald reports that the IMF has aid the AUD is to high and needs to weaken by as much as 10%. “The IMF model suggests AUDUSD should be between 80 and 85 which is also the range identified by Reserve Bank board member Heather Ridout in January as the magic spot that would allow exporters to compete,” the paper reported.

Aussie has actually pushed up about 30 pips after that but as you can see the outlook for Aussia is definitely bearish. We have put our stop loss on the new trade at the point of entry and keeping our main SL from Monday above 0.91 and be looking to add to that if it reaches it and holds. We are also looking to add to our short trade if it breaks the 0.90 level.

Hope you got in on EURUSD and CABLE on the break and that is one of the most important things to remember. There is no need to gamble on which way the market is going to go if it is trading in range. So we are 50 pips onside on our EUR trade and 100 pips onside on our CABLE trade. This was just being patient and trading on the breaks and on the news. That is intra-day trading. We are also still short on our Aussie trade and even though the market has gone against us the last few days it hasn’t hit our stop and that shows how important it is to have your SL in place. We are looking to add even more shorts to this position and targeting 0.86600 to take our profit. That is an example of a longer term strategy. We are staying away from USDJPY right now as it is trading in range and waiting for a break. As you saw from the EURUSD and CABLE breaks today there is a lot of money to make on the breaks of levels and those are the levels to get into the market.

Have a good evening guys and keep an eye on the news overnight for the Aussie which is the Employment Change and the Unemployment Rate just half past midnight. There is important US news on the New York open (1:30 GMT) with Core Retail, Retail Sales, Unemployment Claims and then there is some more Yellen stuff at 3 p.m.

Good luck and remember be patient and enter at correct levels.