Washouts become trickles in EURUSD as the market takes pause

Another day, another catatonic market awaits. News (however ineffectual) was all out overnight, leaving the canvas somewhat blank for us today. 

The headline grabbers were the Chinese CPI prints and Australian employment numbers. The former came in mixed but a net overall small negative, depending on how you look at the world. Normally lower inflation is a positive for any burgeoning economy, meaning that growth needn’t be constrained by the shackles of price and wage inflation, allowing for more organic growth paths rather than fear of an overheating bull in a China shop (pardon the pun... or not). However in this instance, given how heavily handicapped global growth/demand currently is, a lower inflation print (and rather small by usual standards anyway) from the supposedly leading global powerhouse economy is most certainly (at least by me) not to be taken as an overwhelming positive.

This brings us to the other overnight print of Australian unemployment, which coincidentally is in an obscure way tied in with the well being of the Chinese CPI print. The number here was a beat on expectations and thus gave the Little Battler (AUDUSD) a small boost, but be it the summer market or otherwise, the drive higher was by no means overly impressive. Hitting an overnight high of 1.0613, it seems to increasingly smell of a move running out of puff at the top end of a rather large hill recently ascended. I must admit that I have been (and still am) waiting for this turnaround and think that it’s now significantly closer than it was perhaps even a few days ago. However I am loath to express it directly via the USD leg, as it seems the DXY might just have a little more downside in it. Thus I revert back to my GBPAUD radar pick and now patiently await spot entry, having already spent some money on cheap upside Calls in 6 and 8 week tenors.

Meanwhile on the main stadium court, the washout spoken of in this piece on Monday in the EURUSD has become more of a trickle/rinse, as the last minute weak longs established on Friday last week post the ECB debacle have either taken profit or are now being stopped out as I type. A daily close below 1.2270 really starts to light a fire under the pot of complacency currently on the hob and slowly we slip back into familiar limbo territory with an overall downside bias.

The Cable remains resilient, and in light of what seems like a market that got ahead of itself expecting further action out of the BoE, Merv’s denial at his quarterly inflation report chat yesterday has given the doves out there some food for thought. On the downside, 1.5470 has for the time being cemented itself as the line in the sand, and while the topside is having a tough time against the USD, there remains value out there nonetheless. The aforementioned GBPAUD is one alternative while GBPCAD is coming ripe for the picking also.

This afternoon gives us US trade balance, weekly claims, wholesale inventories and CAD trade balance. The only question now becomes, can the SPX sustain its recent days strength or will we see profit taking, tripping stops lower, the answer.... will be divulged this afternoon.

Helmets on and good luck.