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G10 FX: CAD Outperforms, While JPY Lags

TJ Marta from The Overnight Express at 10/12/09


The clear outperformer was CAD, up 0.77% versus USD, while the clear underperformer was JPY, down 0.48% versus USD.

DXY – Sitting on new low since Aug ’08 – The DXY index (76.248) is down overnight, unable to rebound off the low since Aug ’08 traded Thursday. Central banks intervened to buy USDs last week and positioning suggests little potential for speculators to add to USD weakness. The last engine for foreign currency strength is for real money flows to continue diversifying away from U.S. assets. Consequently, while central bank and speculative considerations suggest at least a pause in greenback weakness, a turn lower in risk assets (i.e. equities) would cement the case for a dollar rebound. A final consideration would be interest rates. With the Fed funds rate at or below 25bps, interest rates have not been correlative with FX. However, with the Fed talking about exit strategies, including Fed hiking, we could see rising interest rates help support the USD. Support lies at 75.767 (Oct 8 low), 75.165 (76.4% retracement of Mar ’08 to Mar ’09 rally, and 75.00 (psychological). Resistance lies at 76.668 (Oct 12 high), 77.475 (Oct 2 high), 77.688 (Dec ’08 low) and 78.00 (psychological). Currently, DXY correlates most strongly with gold, crude oil, and the CRB index (all negative). The S&P 500 is less significant (negative).

EUR/USD – Trying to hold onto retest of recent high. EUR/USD (1.4765) is up overnight but appears to be slipping away after retest of the Sep high last Thu. Resistance lies at 1.4844 (Sep 23 high) and 1.4866 (Sep ’08 high). Support lies at 1.4481 (Oct 2 low) and 1.4447 (Aug high). The short-term correlates for EUR/USD are crude oil (positive) and, to a less extent, the S&P 500 (positive).

GBP/USD – Breaking lower. Cable (1.5801) is down overnight and is threatening to break even lower after clawing to hold onto the 1.60 level in recent sessions. Support lies at 1.5729 (Oct 12 low). Resistance lies at 1.6126 (Sep 30 high), 1.6742 (Sep 11 high), 1.6743 (Jun high) and then 1.7043 (Aug high). The strongest correlates over the past two months for GBP/USD have been the DXY (negative), EUR/USD (positive). Crude oil (positive) and the S&P 500 (positive) are still significantly correlated, but the relationships have waned.

USD/JPY – Rebounding off lows. USD/JPY (90.89) is up overnight, with the cross rebounding off the new low since Jan made Wednesday. The cross has breached resistance from the downtrend off the Aug high, and resistance now lies at 90.46 (Oct 12 high), 92.53 (Sep 21 high) and 93.30 (Sep 7 high). Support lies at 88.01 (Oct 7 low) and then 87.13 (Jan ’09 low). The correlations of USD/JPY with the U.S. 10yr yield and U.S.-JP 10yr spread remain strongly significant but are slipping.

USD/CAD – New low since Oct ’08. USD/CAD (1.0334) is down overnight and testing the Sep ’08 low. Support lies at 1.0299 (Sep ’08 low) and then parity. Resistance lies at 1.10 (psychological) and then 1.1125 (Aug high). In terms of other assets correlating with USD/CAD, watch the CRB, and crude oil (both negative). The USD index (positive) and SPX (negative) are also strongly significant.

AUD/USD – Consolidating. AUD/USD (0.9065) is up slightly overnight, holding near new high since Aug ’08 established Thursday. Technical resistance for AUD/USD exists at 0.9090 (Oct 8 high) and 0.9275 (May ’08). Support lies at 0.8570 (Oct 2 low), 0.8545 (Sep 14 low) and 0.8478 (Aug high). AUD/USD has correlated most strongly with equities (S&P 500, positive) and commodities (CRB, positive). The correlation with gold (positive) is slipping.

NZD/USD – Slipping. NZD/USD (0.7347) is up slightly overnight but slipping from the new high since Jul ’08 traded Thursday. Resistance lies at 0.7454 (Oct 8 high) and 0.7500 (psychological). Support lies at 0.7079 (Oct 2 low), 0.7000 (psychological) and 0.6897 (Aug high). The strongest correlates for NZD/USD during the past two months have been AUD/USD (positive), stocks (S&P 500, positive), the USD index (negative), and commodities (CRB index, positive).

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