USD pairs: Relief, suckers rally, or merely consolidation?

While England comes back from a 4 day weekend having revelled in Jubilee Jubilation, the rest of the market has been busy getting on with the task at hand, and thy name this week so far is “consolidation”.

While we seem to have had a few false starts to this theme in recent weeks, this time around it looks like the genuine article if at the very least the length of time taken and the amount of hard yards being put in thus far are anything to go by.

Looking at all major USD pairs and their charts, we are developing classic pennant and/or flag formations that, by definition, run counter to recent trend thus also creating a slightly muddled picture. But as with the truest definition of the above mentioned chart patterns, these are simply junctures of relief from what has otherwise been heavy one way traffic.

Globally nothing has changed in the macro scheme of things, and while various headlines of late allude to banking unions and Euro-wide deposit guarantee mechanisms, these remain nothing more than mere headlines that are being wilfully interchanged with other headlines referencing Euro bonds and the like. Point is, neither is closer to being a reality than is me owning my own private island.

With several event risks on the horizon (all of which are well known to anyone with a financial calendar) the stand outs are clearly today’s ECB meeting, tomorrows BoE meeting and the long awaited FOMC get together on 19/20 June. The first two mentioned will have a tone of further easing attached to them, with various bits and pieces doing the rounds that the ECB could cut today while their English counterparts may in fact look to boost their current QE efforts tomorrow.

On the Fed side of things, more chatter of potential QE3 has had only an impact on Gold which has rallied near on $100 in the last 7 days as an anti-inflationary hedge rather than a direct belief in the merits of owning Gold or selling USD for that matter.

My personal take on the above;

• The ECB will maintain its accommodative stance/language without the direct introduction of additional measures until (if at all) after the Greek election.
• The BoE is odds on to move to greater QE, but even so, these odds are only slightly favouring a move tomorrow.
• The FED will not give us more bang for our buck ahead of the November election, but will likely rather extend Operation Twist (due for completion this month) for perhaps another 9 months. The net effect (should this be the case) will be for knee jerk USD sales, but nothing more.

So turning to levels on majors and where we sit;

• EURUSD: It still looks poorly and while admittedly higher from where we last looked at it, is still within corrective/consolidation mode. The line in the sand remains a daily close above 1.2630/50 and the only difference for now is that we’re close to that line than we were last week.
• GBPUSD: Having taken out multi time frame support at 1.5430 and done some decent work below, I am mildly bearish the pair and will only be changing my mind on a daily close above 1.5580. This morning’s price action was a combination of stops above 1.5430 coupled with Middle East names buying it aggressively.
• AUDUSD: The RBA has now cut 75bps in 2 months and despite an outlier of statistical significance overnight in the form of better GDP, the view for the little battler is much like that for the other major USD pairs, consolidation. I remain bearish and look for another test of 0.9550 with a further potential breakdown into 0.9350. A side note on the RBA, these guys are reticent to move either higher or lower on rates and always leave it to the last when they finally do. The point? Don’t discount the gravity of their recent moves as a precursor for what lies ahead.
• USDCAD: I have no reason to retreat from my bullish intermediate target of a 1.0450 retest and further out fresh highs of 1.0600 and above. Moves into the current space of 1.0300/30 and lower into 1.0230/50 are being used by your scribe to scale further in.
• USDJPY: This is an intervention play at current levels and while small relief is being felt by the BoJ thanks to price action of the last 24hrs, just wait till the world wakes up from its delusional slumber and realises no one has actually solved anything. One touch 77.50 binary options could be a quick way to play this right now.
• USDCHF: Form a view on the EURUSD and execute accordingly. Mind the SNB gap though...
• EURGBP: Well, I’m short the Cable, wherein looking at it this morning I should have just been short the EURGBP. On the topside 0.8120/40 has held well and should continue to do so in coming days. Confused about why I’m short Cable when being short EURGBP argues for the opposite? At these prices, quite frankly so am I...

That covers it for today folks, the helmet is getting readied for the ensuing excitement that Super Mario will bring to the table this afternoon.