Currencies Fail to Hold Early Gains; USD Rallies (Morning Slices)

Fundys - Any currency gains seen early on were easily wiped out with the USD the prime across the board beneficiary on a reduction in risk appetite, brought on by lower equity prices and weaker overnight data. Talk that a hedge fund was in trouble also did not help the cause with the Euro breaking down to fresh daily lows below 1.4300 into the US open. The Australian Dollar has been hit the hardest on the day, with the single currency suffering from the pullback in risk appetite, a discouraging current account number and most importantly a more dovish than expected accompanying monetary policy outlook from the RBA following the decision to leave rates on hold at a record low 3.00% as widely expected. Sterling has also been one of the weaker currencies with the pound suffering from the much softer than expected August manufacturing PMI result. Some better than expected Eurozone August PMI and steady unemployment failed to materially factor into price action, although the Euro did manage to find fresh bids on the Eur/Gbp cross. Elsewhere, Swiss data releases were impressive with not as bad GDP and better PMI. Looking ahead, US ISM manufacturing (50.5 expected), pending home sales ( 1.6% expected) and construction spending (0.0% expected) are all due at 14:00GMT. US equity futures point to a lower open by some 0.50%, while commodities are marginally offered. Techs - EUR/USD rallies on Tuesday have been well capped by the recent consolidation highs and the market has since pulled back to the 10-Day SMA thus far. Key levels to watch over the coming session come in by 1.4410 and 1.4255. USD/JPY price action has been less than compelling on Tuesday with the market trading close to daily opening levels just over 93.00. Look for a break above 93.60 or below 92.55 for next move. Our bias favors additional weakness to challenge the recent trend lows by 91.75. GBP/USD very well offered into the US session with gains stalling out just shy of Friday's 1.6385 consolidation highs. A lower top is now sought out by 1.6385 to be confirmed on a drop below 1.6155. This will then expose psychological and 100-Day SMA support by 1.6000. USD/CHF remains very well bid on dips into the mid 1.0500's with the market attempting to once again rebound out from the familiar multi-week range base. Ultimately, a break back above 1.0715 will be required to accelerate gains and take the pressure off of the downside. We do however recommend continuing to pay the range and as such, maintain a bullish bias. Flows - UK clearer sales in Cable; model fund bids. UK clearer and US prime name bidding Eur/Gbp. US prime and short-term spec bidding Aussie into dips. Local names buying Usd/Cad. Trade of the Day - Eur/Gbp: We had issued 2 Sterling recommendations already on Tuesday, but with GBP/AUD racing higher and Cable dropping, we were unable to participate in the moves and have since issued our latest recommendation on this cross. The overall structure remains grossly bearish and we view the latest multi-day rebound as corrective in nature, ahead of the next major downside extension below 0.8400. Daily studies are also now approaching overbought readings which make the short trade all the more attractive. The 200-Day SMA which had been supporting much of the rally in 2008 and 2009, now acts as former support turned resistance, and we will look to take advantage of any rallies towards this level on Tuesday, to establish the position. Our entry level also coincides with the spike high from June 5. STRATEGY: SELL @0.8865 FOR AN OPEN OBJECTIVE, STOP 0.9015. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON TUESDAY. 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 full profit and loss statement since inception on June 1, 2009.

Written by Joel Kruger, Technical Currency Strategist for DailyFX.com If you wish to receive Joel's reports in a more timely fashion, e-mail jskruger@fxcm.com and you will be added to the distribution list.

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