EUR/USD: bearish below 1.4450
Per-Erik Karlsson from Avantage Financial GMBH at 01/15/10
Market Comment
JP Morgan and Intel both companies out beating earnings estimates and S&P 500 futures moved towards the 1150 level, but stopped at 1147. We still see some weakness from Monday’s sell off from the yearly high at 1148 from Monday. So we are still looking at possible shorts if the right signal present itself, not seen it yet. ECB left rates unchanged as expected, but Trichet said the recovery could be bumpy and uneven. Trichet out saying that there is a major debt problem and no special treatment will be given to any specific country, referring to the debt problems of Greece and potentially Spain and Ireland among others. We heard rumor overnight that Chancellor would resign, triggering stops in Euro below 1.4450 and it fell rather quickly below 1.44. Euro trading with a heavy tone so far today and key support is now 1.4200 that needs to hold to avoid another sell off. Crude outlook remains weak with prices below 79 USD per barrel this morning and following the inventory data over the last few days with huge builds across the line from both API and DOE we expect the tone to continue to be weak also today. IEA out revising down their Oil demand outlook for 2010 form the Dec read. Nat Gas continue to be very volatile as the Nat Gas inventory data came in higher than expected sending price down by more than 3% after the release. The weather reports suggest that warmer weather will most likely come into the US later this week, which is weighing on Nat Gas prices. The inventory levels in both Crude and Nat Gas are high and widening contango in Crude over last few days is not good for Crude prices in the long run as the supply that is put on storage have to come back to market sometime in the future, meaning the supply is still there in the background. Gold is trading at 1135 this morning and we see interim rising support from the Dec 09 low coming at 1117 today and while above this rising support the outlook remains bullish. The test of the 1075 level was successful on 22nd of Dec., which should provide strong support in the background. AS we wrote over the last few days, any strength in JPY should be viewed as another opportunity to sell JPY and indeed it tested 90.70 (former break out level) again this morning, which we see as a good short term level to trade long from. EURJPY should see decent support in the 130.50 level. GBP has seen good support over the last few days printing a new weekly low vs. Euro today breaking below 0.8820, nearly 3 months low. We have seen several hawkish comments on UK over the last few days, suggesting that a rate hike is being priced in more aggressively now, giving support to GBP. Would also like to mention that Corn is taking a bit beating and traded limit down Tuesday after the USDA report showed that the estimated 2 million more acres of corn than expected. They had to be hidden really well since basically everybody missed this.
We are once again looking at potential plays in VIX this morning as we still think a move higher is likely in the next 3 weeks. Almost looks a bit too complacent at the moment. For clients following our intraday service, an update on the VIX trade will be published this afternoon on the private Twitter feed.
| Volatility ATM options | 1w | 1m | 3m | |||
| put | call | put | call | put | call | |
| EURUSD | 9.29% | 9.29% | 9.95% | 9.95% | 10.35% | 10.35% |
| GBPUSD | 9.00% | 9.00% | 10.16% | 10.16% | 11.21% | 11.21% |
| USDJPY | 11.35% | 11.35% | 12.17% | 12.17% | 12.90% | 12.90% |
| USDCHF | 9.05% | 9.05% | 10.03% | 10.03% | 10.29% | 10.29% |
| AUDUSD | 11.05% | 11.05% | 12.29% | 12.29% | 13.71% | 13.71% |
| USDCAD | 9.90% | 9.90% | 10.87% | 10.87% | 11.89% | 11.89% |
| EURJPY | 10.65% | 10.65% | 11.32% | 11.32% | 12.62% | 12.62% |
| GBPJPY | 12.20% | 12.20% | 14.43% | 14.43% | 14.96% | 14.96% |
| AUDJPY | 14.34% | 14.34% | 15.58% | 15.58% | 16.67% | 16.67% |
| NZDJPY | 13.89% | 13.89% | 15.84% | 15.84% | 17.07% | 17.07% |
| EURNOK | 6.16% | 6.16% | 7.11% | 7.11% | 7.44% | 7.44% |
Technical’s
Euro: Was never able to reach the resistance at 1.4630 and broke lower overnight, bearish tone below 1.4450 now with Friday’s low of 1.4262 should is now support.Cable: Held at 1.5895 last week, which gives a higher low than previous week. That is bullish in itself and the interim falling resistance was taken out yesterday, possible for a test of 1.6410.
USDJPY: We see longer term falling trend line coming in at 94.24, which is still the key level to break to open for a stronger run higher. We expect sellers to use this level to look for a correction on the strong run from the 85 at 27th of Nov 09. Longer term we still expect JPY to underperform due to high public debt, weak demographics and tougher export markets due to slower growth going forward.
Swissy: Broke below 1.02 level overnight, which has held as support for the last month. That is bearish and opens for a test of 1.00 level near term. Potential inverse H&S pattern if 1.0030 support holds
AUDUSD: Interim rising support coming in at 0.9208 today and outlook is bullish above this trend line with key resistance up at the Nov 09 high of 0.9405. Seems very likely that RBA will hike rates next month following strong Jobs data.
USDCAD: Still expect the 1.04 to continue to be a main pivot level in the near future. So while below the 1.04 level it remains bearish. Key support is down at 1.0205 (low from October 09) and this support level has been tested a few times over the last week, but held so far, maybe another approach would deal the final blow out punch?
EURJPY: Minor support broken at 131.24 with more support in the 130.50 region. Key resistance level is last reaction high at 134.56 (Dec 2009 high)
GBPJPY : All over the place lately, but bullish above 146, with strong resistance up at 151.
AUDJPY: Still trading inside the Rising trend channel from 13th of July with support down at 78.28 and overhead resistance at up at 88.29.
| Levels | Euro | Cable | USDJPY | Swissy | AUDUSD | USDCAD | EURJPY | GBPJPY | AUDJPY |
| Res2 | 1.4625 | 1.64 | 94.37 | 1.0507 | 0.9405 | 1.07 | 134.54 | 150.66 | 87.15 |
| Res1 | 1.4556 | 1.627 | 93.7 | 1.02 | 0.932 | 1.04 | 133.7 | 149.45 | 85.3 |
| Sup1 | 1.4216 | 1.5895 | 90.8 | 1.0030 | 0.9106 | 1.0205 | 131.24 | 146.77 | 77.66 |
| Sup2 | 1.4044 | 1.5706 | 90.34 | 0.9959 | 0.863 | 1 | 130.7 | 145.99 | 76.54 |
| Pair | Our strategy Today | Our medium term forecast |
| EURO | Bearish below 1.4450, next sup is 1.4262 | Test of 1.4200 over the next week |
| Cable | Bullish for a test of 1.6410 this week | Negative outlook for GBP longer term |
| USDJPY | Profit taking as 94.35 level held, 90.70 should provide support and looking enter long down there if possible | Test of 94.42 |
| USDCAD | 1.04 is pivot level, bearish below, sell rallies, key support is 1.02 | Test of 1.02 next 4 weeks |
| EURJPY | Should bounce from 130.50 | Our 133.70 target reached |
| AUDJPY | Expect more JPY weakness and AUDJPY should head higher | 85 target hit |
| GBPJPY | Bullish above 146, looking for 151 test again | 153 target hit, stand aside |
| AUDUSD | Looking for test of 0.9405 | Test of 0.9405 |
