MORNING SLICES
Fundys – A nightmare session for Sterling with the single currency getting hammered in unrelenting fashion on the back of some very downbeat and dovish comments out from BoE Governor King. The main takeaways were that a weaker Sterling rate was a welcome to help rebalance the economy, a credible budget plan was required, and that two UK banks neared collapse at the height of the crisis. The Sterling price action took front and center stage, with the weaker than expected German IFO data failing to really factor into price action. German IFO was the only key economic release in Europe and the market will now look ahead to data in the US session. In general, any profit taking on USD shorts from Wednesday has proved to be just that, with the market still content on trading into higher yielding currencies and bashing the buck. US equities and commodities which had been tracking lower in Asia, have now recovered into the US open. Initial jobless claims and continuing claims are due at 12:30GMT, followed by the RPX composite at 13:00GMT and existing home sales at 14:00GMT.
Techs - EUR/USD We are not going to get too excited just yet, with the market still supported on dips to the 10-Day SMA for now. However, we continue to recommend looking for opportunities to fade the overbought major with a top of some form likely to establish over the very short-term. For now, any rallies on Thursday should be well capped in the 1.4800 area, with gains not seen extending to retest Wednesday’s 2009 high at 1.4845. Key short-term support comes initially by the 10-Day at 1.4700, with a break exposing 1.4610 further down. USD/JPY Back under pressure since gains from Monday’s bullish price action stalled out shy of the 93.30 double bottom objective in favor of a resumption of the broader downtrend. It is too early to tell at this point, but a lower top could now be in place by 92.55 ahead of the next drop below 90.00 and towards critical support by 87.15. We do not hold any strong bias at current levels and recommend taking to the sidelines. For today at least, we do not see declines extending below 90.00 with the greater risk for yet another bounce. GBP/USD We continue to maintain a sell on rallies approach to this market with the view that the pair has made a meaningful high above 1.7000 this year. The market looks to be in the process of carving the right shoulder of a head & shoulders top that ultimately would project setbacks to 1.5000 over the coming weeks. We are now nearing and expected to test key neckline support which comes in just under psychological barriers at 1.6000. Wednesday’s bearish gravestone formation reaffirms bearish outlook. USD/CHF (See below).
Flows – Commercial interest in Eur/Chf. UK clearer buying Eur/Gbp. Central bank demand for Aussie. Asian central bank offers in Eur/Usd.
Trade of the Day – Usd/Chf: While we think the market could finally be ready for a major upside correction, we do not see this happening without some form of a fight on Thursday. There seems to be room for one more intraday pullback towards 1.0200 before the rally can finally start to get going. The 1.0200 area is major longer-term support, representing the 78.6% fib retracement off of the critical 2008 low-high, and we see any additional pullbacks from here as limited. With the current daily high by 1.0305, the daily projected ATR low would come in directly by the 1.0200 longer-term 78.6% fib, while the 78.6% fib retracement off of the recent 1.1085-1.0305 comes in by 1.0210. As such, we will look to take advantage of another intraday dip towards 1.0200, to establish a fresh long position. Daily studies are just starting to show a willingness to turn up from oversold, which helps to reaffirm bullish outlook. Fundamentally, it certainly is not a bad thing to have a concerned SNB on our side for this trade. POSITION: LONG @1.0215 FOR AN OPEN OBJECTIVE; STOP 1.0085.
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 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.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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