Today’s key FX developments
By John J Hardy
- The USD suffered further weakness after a batch of mostly weak data out of the US yesterday. However, it did manage enough of a comeback today – despite this being a US holiday – to keep the situation from entirely tilting against the greenback’s favour. For example, EURUSD moved well above 1.2500 yesterday, only to see the rally fade today. The GBPUSD rally faded more convincingly, and rate spreads suggest a risk that we retest the lows.
- JPY crosses consolidated slightly, with USDJPY testing below minor 117.35 support, before rallying slightly again ahead of tonight’s big batch of economic data from Japan.
- AUDUSD heavily disappointed bears this week by failing to stay lower after breaking to new lows for the cycle. Despite this, today’s action keeps the bears from losing all hope as a significant portion of the upside in Asian and early European hours was reversed later today.
- NZD is an outperformer and AUDNZD has sliced through the 200-day moving average.
- NOK is on the defensive as EURNOK toys with the highest daily close since 2009.
Assessing the various JPY crosses, the EURJPY chart is a bit more compelling for looking for further consolidation, after the big cut lower last Friday. Resistance is coming in ahead of 147.50 and the possible focus of a follow-up sell-off lower (should the JPY firm on stronger-than-expected Japanese data, for example) might come in around 143.40, the 38.2% retracement of the rally off the October lows.
It’s disappointing for EURUSD bears that the pair didn’t try lower after the big speech by Draghi last Friday triggered such a steep sell-off. The next bigger move, either above the November high at 1.2600, or below the 1.2357 cycle lows, may have to wait for the outcome of next Thursday’s ECB meeting.
Disappointing here for the bears that the pair couldn’t hold lower on the fresh lows for the cycle earlier this week although the bears may keep their hopes alive as long as we remain below the 61.8% retracement of the latest sell-off wave, which comes in slightly above the old support/now resistance line at 0.8660. That 61.8% retracement (plus a few pips) was where AUDUSD found resistance the last time around in mid-November.
AUD has been very weak versus both CAD and NZD lately, with AUDNZD shown below. The pair has taken out the 200-day moving average although there may be little left on the fundamental side to support an additional move lower. Note the 61.8% retracement level from the early 2014 lows to October highs coming right in at 1.0800.
The pair has rallied sharply over the past few days in line with the steep decline in the crude oil price. Today’s Opec meeting reaction will be important in determining whether the 8.60/65 area remains the cap for now or whether we push back into territory unseen since late 2009.
All graphs: Saxo Bank
-- Edited by Kevin McIndoe John J Hardy is head of FX strategy at Saxo Bank – the home of social trading.