Mid-Day Update and Analysis of Selected Cross Rates
US ISM much better than expected; bolsters risk appetite. Fed Fisher looks for fiscal authorities to step up. US equities recover from lows. Commodities tracking lower. Euro and Yen back to opening levels.
OVERVIEW - Key event risk this morning in the form of the US ISM data , was much better than expected coming in at 35.6, well above the 32.5 consensus estimates. This helped to recover US equities out from intraday lows and prop European markets somewhat. Slightly weaker consumer spending and construction data failed to materially factor into price action. Dallas Fed President Fisher said that the Fed had done a great deal to prop the economy and that the time had come for fiscal authorities to step in. China's Premier Wen was on the wires expressing some optimism with regard to a potential end to the global financial crisis but also said that additional stimulus packages were needed. ECB Gonzalez-Paramo was also on the wires talking up the future prospects for the Euro. As was the case in the previous week, the overnight flight to safety buying is finding good offers in the US session and into the London fixing. EUR/USD is trading well off its 1.2705 lows and back to daily opening levels by 1.2800 while USD/JPY has found good bids by 88.80 and also trades back by daily opening levels at 89.75. The DJIA and S&P are down some 0.90% and 0.60% respectively, while the NASDAQ trades up some 0.40%. Commodities are tracking lower with oil down 0.70% and gold -1.33%. Looking ahead, price action could pick up some more into the afternoon as Treasury Secretary Gethner is expected to meet with Bernanke, FDIC Bair and Comptroller Dugan on financial regulatory issues.
Eur/Aud has broken out from the latest bullish consolidation and extended gains into the early week with the cross now eying a retest by the multi-year highs posted back in October at 2.1150. However, multiple attempts to clear topside resistance at 2.1150 have failed since October and any gains have since stalled out on approach. While daily studies show room for additional upside towards 2.1000-2.1150, any challenge by the latter over the near-term will also likely result in an overextended RSI. As such, look to be playing the long side until 2.1000 from where positions should be reversed in anticipation of range resumption. Any setbacks are now seen supported ahead of 1.9420 (20Jan low).
Eur/Chf is trading in choppy sideways fashion with the range parameters being defined by 1.5200 and 1.4650. However, we maintain a mildly bullish bias with the prospect for a medium-term higher low above 1.4300 still intact at 1.4650 as the market attempts to carve out a potential inverse head & shoulders. Look for the current pullback to ultimately be buoyed by 1.4765 (78.6% fib of 1.4650-1.5200) ahead of fresh upside beyond the neckline at 1.5200. Bulls should be looking to buy at 1.4765 or back above 1.5000. Only back under 1.4650 negates outlook.
Eur/Gbp has seen a significant shift in structure with the cross in the process of carving out a major top. The 20-Day SMA (0.9120) which had been supporting much of the aggressive push higher since late 2008, was broken last week and we now look for rallies to find solid offers by the 20-Day which is expected to act as previous support turned resistance. The 20-Day SMA also appears to be on the verge of a bearish cross with the 50-Day SMA which reaffirms bearish bias. Key short-term levels to watch above and below come in by 0.9120 and 0.8785.
Eur/Jpy continues to trade with a heavy tone as the market consolidates just over the 112.10 (21Jan) trend lows. While daily studies show scope for additional setbacks and favor a retest of the 112.10 lows, medium-term analysis warns of the need for some healthy corrective action. The market has more or less been confined to a 115.00-130.00 range trade over the past several months and as such, we would recommend selling on rallies to 130.00 or buying dips towards 112.00.