The overnight session of trade has been dominated by fear with elevated risk aversion taking hold on a renewed uncertainty over the outlook for the global economy and recovery prospects. Many have been focusing on the China bubble scenario which would not bode favorably on a global economy that has come to so heavily rely on the growth story in China.
MORNING SLICES
Fundys – The overnight session of trade has been dominated by fear with elevated risk aversion taking hold on a renewed uncertainty over the outlook for the global economy and recovery prospects. Many have been focusing on the China bubble scenario which would not bode favorably on a global economy that has come to so heavily rely on the growth story in China. This in conjunction with what was already perceived to be some overbought equity markets and overbought hopes for a sharper recovery, have helped to accelerate declines into Monday, with the Yen and USD benefiting on familiar correlations of “flight to safety” trade. US equity futures point to a much lower open, down by some 2%, while commodities are also getting slammed. On the data front, Swiss retail sales came in better than expected, while the Eurozone trade balance was weaker. However, these releases failed to materially factor into price action. Many technical traders now are paying attention to the break below the 50-Day SMA in both Eur/Usd and Cable, with the development potentially signaling a material shift in the medium-term structure in favor of the USD. Looking ahead, empire manufacturing (3.00 expected) is due at 12:30GMT, followed by TIC data ($17.5B expected) at 13:00 GMT, and NAHB house prices (18 expected) at 17:00GMT.
Techs - EUR/USD under some intense pressure in the early week with the market once again dropping to test the 50-Day SMA. Look for a close below the 50-Day to open a shift in the structure, while inability to do so will keep the pressure on the topside. Key levels to watch over the coming session come in by 1.4160 and 1.4005 respectively. USD/JPY remains very well offered since failing above the daily ichimoku in the precious week with the market extending declines below Friday’s lows. Key levels to watch over the coming session come in by 95.00 and 94.00 respectively. GBP/USD hit hard on Monday right from the open to trade lower by more than 2 big figures. The market has also convincingly broken down below the 50-Day SMA, with a close below the moving average to potentially signal a medium-term shift in the structure. Key levels to watch today come in by 1.6390 and 1.6265. USD/CHF well bid on Monday to trade back above 1.0800. However, the market is still confined to the very well defines range of the past several weeks, with only a break above 1.1025 to suggest a bullish shift in the structure. For now, 1.0885 marks next resistance, while dips should be well supported ahead of 1.0700.
Flows – System funds selling Eur/Usd; technical accounts also selling on break of 50-Day SMA. Kiwi exposrters looking to buy dips in Nzd/Usd. Model accounts selling Aussie. CTAs selling Usd/Jpy and Yen crosses.
Trade of the Day – Gbp/Chf: One of our favorite trades at the start of 2009 and was to look to take advantage of an oversold Sterling against both the Euro and Swissie at any chance and on any dip. This strategy has proven to be a rewarding one and with plenty of time to go until the year end, we continue to recommend buying Sterling on dips on the mentioned crosses. Currently, this cross has been undergoing a period of weakness over the past several days, resulting in a material pullback from the 1.8100 area to 1.7600 thus far. However, these setbacks are still classed as corrective and we ultimately favor bullish resumption back towards 1.8100 over the coming days. The market seems to be very well supported in the 1.7500’s and with the 78.6% fib retrace coming in just under 1.7550, we will look to take advantage of any additional intraday pullbacks to look to establish a fresh long position. STRATEGY: BUY @1.7550 FOR AN OPEN OBJECTIVE, STOP @1.7350. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON MONDAY.
P&L Update and Overview: Many of you have been asking for a way to better track trading results and open positions. In response to these requests and in an effort to be fully transparent, a simulated portfolio was been created in June to track and mirror all recommendations and trades. Below is a return on equity curve since inception on June 1, 2009, along with an open and closed position tracker. I am hopeful that this will make things easier for you all.
Additionally, please feel free to check out a full profit and loss statement since inception on June 1, 2009.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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