Overnight we saw equity indices lower with the Asian markets following Wall street’s lead. A general bout of risk aversion seems to be the play as we head into a quiet day ahead of the G20 summit this weekend in Canada.
In all likelihood little will come out of this meeting that will have any bearing on the FX markets as China has already made its pre-emptive strike last week and now the broader topic of conversation should centre around global banking levies and the need for fiscal controls to be reigned in… Not rocket science really as all participating nations have blown their budget deficits well wide of manageable levels in an attempt to pump some life into the post GFC world. Clearly talk and/or action on this front to the tune of genuine stimulus reduction will likely be even more risk negative and should send equity markets down to recent lows.
We also had the US House of Reps and Senate discussing amendments to the recent Volcker plan with far more stringent augmentations on the table. But either way this is still far off as a machine of that size takes quite some time to turn…. Snoredom….
On the day we really are quiet as data is muted and only the US GDP (3rd revision) is really out. So where does that leave us on the currency front?
Well in simple terms confined to recent ranges and more likely overnight plays still hold force.
I’m still a buyer of JPY for choice and feel that this will continue into the summer. On the EURUSD we likely retest last night’s highs before we come lower again, it’s basically a case of we haven’t been there for a while so let’s see what’s going on up there before we resume or move lower again. 1.2380 to cap the upside while 1.2280 will provide small initial support before 1.2250 becomes a little bit more formidable.
The Cable is still on steroids but now seems to be getting driven a little bit more by the EURGBP play which having tested recent lows comes back a little better bid this morning. Stops in the cross are rumored to be sitting above the 0.8280 level. I am still a seller of the Cable and would need a break below 1.4880 to have confirmation and feel more comfortable about my current shorts.
The USDJPY while somewhat contradictory to my above rhetoric is likely to grind a little higher this morning and I feel that the upside should be tested and capped around the 90.10/15 area with 90.30 providing ultimate resistance.
The AUDUSD is still in limbo-land thanks to the political landscape down under but is still looking heavy to me nonetheless. I am a seller of strength and look to fade rallies into 0.8730 and above.
The USDCAD given its current momentum is likely to test the 1.0530/50 level early next week and from there I reassess and consider small speculative sales in an attempt to play the range within the broader range.
And finally on the radar going into the new week I look for opportunities to get short the GBPJPY and perhaps even the AUDJPY, but more on that after the weekend when things are a bit clearer.
It’s getting ever quieter out there folks as the World Cup really takes hold and more and more people are in the midst of planning their summer holidays, so with that in mind keep your eyes peeled for value rather than volatility and be subjective when choosing trades looking for justifiable risk reward profiles.
A good weekend to all and as always don’t ruin your weekend with a cheap Friday punt.