JPY trading strongly on risk aversion
Per-Erik Karlsson from Avantage Financial GMBH at 02/16/10
Market Comment
The Greece debt problems continues to be the major market driver with fresh news over the weekend that Goldman Sachs created currency swaps for Greece to reduce their debt and it seems that Greece is losing credibility as each day passes. We are very critical that Germany and France are willing to pay for Greece inability to control spending. We note that many other Euro zone states were forced to cut spending some years back to join the Euro and now they discover that Greece is taking a “free ride”, cannot be good for the Euro zone this mess. The problem for the Euro zone is of course the consequences and loss of face if they would have to throw Greece out of the Euro. Many argue it would be looked upon as a huge failure, but we are not so sure that it would be that negative for the Euro if that would happen, since that would send a strong signal to other member states that the rules have to be followed. Have seen stories out in the press that Chancellor Merkel has secured Axel Weber to replace Mr. Trichet as the head of the European Central Bank, which we think would make a “bail out” of Greece less likely. Mr. Trichet has to step down for the ECB job next year
JPY trading strongly on risk aversion, we don’t think the JPY will do well over time as fundamental weakness should catch up with valuation. We think JPY is hugely overvalued at this point.
S&P futures has taken out the interim down trend and technically still in an uptrend if 1056 key support can hold. Next key resistance is 1103, which needs to be broken to open up for any stronger rally. The strength from Friday 5th of February is still in the background with daily record volume this year and the highest volume day seen since 21st of November2008. The bar closed way off the lows as prices reversed strongly towards the end of the session. This certainly signals that is was a lot of buying in that bar, otherwise it was no way it could have rallied that strongly off the lows. We would like to see a daily close above 1080 to really confirm this bullish signal. Key support is now Friday’s 5th of February low (1040.75) and the 23,60% Fibonacci retracement of the March 09 to January 2010 coming in at 1031. Key resistance remains 1103.
As outlined last week, Gold is bullish above 1075 key support and next key level is reaction high at 1126, now resistance. Crude is on the offensive again and above 75 USD per barrel level Friday, but as we have mentioned many times of the previous weeks, it remains in the wider range since 6 months and it doesn’t appear to be any real driver near term to take out this range with support at 67.87 and resistance at 84.33. We note that CAD is getting a bid on the latest rally in Crude and maybe worth looking at buying some CAD?
VIX hit our target of 26 Friday 4th of February and we think it is limited how much higher it will go near term, but again depends on S&P ability to stay above 1056 key support, actually yesterday’s low.
EURJPY vs. S&P 500 futures, see how the correlation has been totally off the last few months, but returned last week or so. Looking at the EURJPY vs. S&P 500 chart is looks like every time there has been a longer time of very low correlation it has been followed by a longer directional move.
| ATM | 1w | 1m | 3m | |||
| put | call | put | call | put | call | |
| EURUSD | 10,50% | 10,50% | 11,18% | 11,18% | 11,71% | 11,71% |
| GBPUSD | 11,11% | 11,11% | 11,52% | 11,52% | 12,11% | 12,11% |
| USDJPY | 10,70% | 10,70% | 11,59% | 11,59% | 12,34% | 12,34% |
| USDCHF | 9,69% | 9,69% | 10,41% | 10,41% | 11,10% | 11,10% |
| AUDUSD | 12,68% | 12,68% | 13,22% | 13,22% | 14,09% | 14,09% |
| USDCAD | 10,00% | 10,00% | 10,76% | 10,76% | 11,81% | 11,81% |
| EURJPY | 14,53% | 14,53% | 14,95% | 14,95% | 15,26% | 15,26% |
| GBPJPY | 14,79% | 14,79% | 15,85% | 15,85% | 15,92% | 15,92% |
| AUDJPY | 17,15% | 17,15% | 18,37% | 18,37% | 19,15% | 19,15% |
| NZDJPY | 18,75% | 18,75% | 19,56% | 19,56% | 20,14% | 20,14% |
| EURNOK | 6,80% | 6,80% | 7,17% | 7,17% | 7,30% | 7,30% |
Technical’s
Euro: Weak below 1.3840 and the next Fibonacci level, 61.80% retracement is at 1.3488. Looks like sell on rallies until the stock market get some upside momentum.Cable: Break below 1.57 key support took the pair out the range that it traded for over the last 6 months, which is very bearish and opens for a move towards 1.5370 level. A break above 1.58 would make a reversal pattern and signal a potential bottom.
USDJPY: The 88.58 low from 4th of February has held so far and we favor longs as long as this level holds. Falling resistance from April 09 high is coming in at 92.55, which needs to be taken out to open for any stronger move higher. We still favor getting long when the current debt crisis nerves diminish, but that could take a few days. 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: Took out key 1.0590 resistance level and bullish above 1.0480 now. We note that key falling resistance from the October 2009 high is coming in at 1.0966, of course not in play at the moment, but something we like to have in mind.
AUDUSD: Big spike on the better than expected Australian jobs report overnight and it now looks like a solid base have been built around the 0.8579 low from 5th of February. Next resistance level is 0.8916 (3rd Feb high).
USDCAD: The 1.0750 has held again and back below 1.06 this morning, now expect it to move down towards 1.04 support that has been a swing level numerous times the last months.
EURJPY: Break below 124 is basically enforcing the recent bearish momentum it has now broken out of the range seen since April 09 and next really strong support level is now 115.90. A daily close above 124.20 would open for a run higher.
GBPJPY : Weak below 141.43, which is 5th of February high and need to see a close above this level to make a bullish pattern or daily chart. Key support remains 138.26 (5th of Feb low).
AUDJPY: Key support at 76.30 has held so far and the spike overnight on the better than expected Australian jobs report signals a potential bottom has been created. We would like to see a close above 80.32 as confirmation of this bottom.
| Levels | Euro | Cable | USDJPY | Swissy | AUDUSD | USDCAD | EURJPY | GBPJPY | AUDJPY |
| Res2 | 1.4216 | 1.629 | 93.7 | 1.12 | 0.9405 | 1.0869 | 127.00 | 143.00 | 86.20 |
| Res1 | 1.3725 | 1.6123 | 91 | 1.0966 | 0.8916 | 1.0745 | 124.20 | 141.43 | 80.32 |
| Sup1 | 1.3584 | 1.5530 | 87.34 | 1.048 | 0.863 | 1.04 | 120.00 | 137.3 | 76.30 |
| Sup2 | 1.3488 | 1.5372 | 84.83 | 1.03 | 0.856 | 1.0205 | 115.9 | 135.02 | 70.30 |
| Pair | Our strategy Today | Our medium term forecast |
| EURO | Sell rallies below 1.3820 | Correction to 1.4216 |
| Cable | Bearish below 1.5760, next support is 1.5370 | Test of 1.52 |
| USDJPY | Bullish above 89.00 | Test of 92.55 falling resistance |
| USDCAD | Bearish below 1.0745, sell rallies | Our target of 1.07 hit and expect to move back down to 1.0450 |
| EURJPY | Weak below 124 | Test of 120 near term |
| AUDJPY | Stand aside | Looking to get long at lower levels |
| GBPJPY | Bearish below 143 | Test of 137 within the next few weeks |
| AUDUSD | Bullish above 86 level and key resistance is 0.8916 | Test of 0.90 next weeks |
