Markets reverse course in US session; familiar pattern developing. US data stronger than expected. More talk of US bank rescue plan bolsters confidence. Sterling/Yen Cross could be poised for breakout.
MIDDAY SNAPSHOT - As has been the case over the past several sessions we continue to see overnight flight to safety buying offset into the US morning as US based investors appear to have a stronger appetite for risk. The Euro has recovered nicely out from the morning lows by 1.2815 back above 1.2900 after being well propped above Tuesday's 1.2800 lows. Yen crosses have also rebounded from their respective lows as we head into the London fix. More talk of a US bank rescue plan along with better than expected US data in the form of ADP and ISM non-manufacturing have also helped to reinfuse appetite for risk. US equities are tracking higher with the DJIA, S&P and Nasdaq up some 1.0%, 1.40% and 1.80% respectively, while commodities are also higher with oil and gold up 1.85% and 0.70% respectively.
Eur/Gbp is in the process of carving out a major top on the daily chart since stalling out by life-time highs at 0.9805 in late December. A confirmed lower top is in place by 0.9520 (26Jan high) following the recent break back below 0.8835 and the latest minor bounce to 0.9085 on Tues only classed as corrective. The market is once again rolling back over intraday and we look for a direct retest on 0.8785 with acceleration expected on a break towards 0.8665 (13Nov previous trend high). Back above 0.9085 however will delay.
Eur/Aud is seeing some interesting price action on Wednesday with the cross accelerating to fresh multi-day highs at 2.0395 before failing and reversing sharply back to daily opening levels at 2.0025. The bearish intraday reversal is more sensible considering the reversal day on Tuesday and with stochastics on the verge of a negative cross we look for a break back under 1.9895 (Tuesday low) towards the previous congestion base in the 1.9500 area. Ultimately, the structure is bullish and would recommend looking to buy on dips towards the latter.
Gbp/Chf price action helps to confirm our bearish Eur/Gbp bias with the market looking increasingly constructive with higher lows now comfortably in place above the 1.5125 (29Dec 2008) historic lows at 1.5650 (21Jan low) and 1.6355 (2Feb low). Look for a break back above 1.6880 (30Jan high) over the near term to accelerate and open fresh upside back towards 1.7435 (13Nov low).
Gbp/Jpy The market has been confined to an intense downtrend over the past several months with the cross rate trading to fresh life-time lows by 118.85 on 23Jan ahead of the latest minor bounce. However, recent price action has been quite constructive with the market putting in a fresh higher low on each day in the preceding week and refusing to rollover after putting in a bearish reversal day on Monday of this week. Additionally, it is worth noting that the lifetime lows by 118.85 have directly coincided with former trend-line-resistance (30Oct high) now turned support. Although weekly studies remain in oversold territory, the weekly RSI looks to be on the verge of a positive cross for the first time since March 2008 where we saw a 20 big figure move to the upside. Positive crosses in the RSI on the weekly chart have been few and far between over the past 20 years and each time, the bullish signal has yielded a major shift in the trend. The one exception was March 2008 where we still saw significant upside (aprox. 20 big figures) before bear trend resumption.