AUD renaissance catch traders on the hop

EUR USD (1.2875)
Yesterday’s one-way price action alone was sufficient to demonstrate the earlier Asian sell-off had more to do with poor liquidity than with any market conviction about the dollar. Indeed, as the euro recovered, so the belief seemed to grow that the peak in US rates has now been seen. However, the initial weakness was not without its consequences: short-term longs that had been in the market were stopped out. This meant that the single-currency met no profit-taking offers as it rose. Indeed, the only remarkable sellers were the top-pickers who emerged just ahead of last week’s 1.2910 high. These sales succeeded in pushing the euro back to 1.2855 in NY. This is the situation that prevails this morning.

The problem with supply that is the result of short-term top-picking is that the positions must be bought back. Thus, it is rarely able to produce a durable peak. It can be successful for a while – as was the case yesterday – so it remains an appealing strategy. But it usually ends in tears. This is why ‘double-tops’ and ‘double-bottoms’ are so rare. The preference does give us the opportunity to retry a bullish strategy in case this selling pushes the price as low as 1.2825. We would then set the risk-limit at 1.2765. Alternatively, a short-squeeze would be triggered in case of a move to a new high. But from a risk-reward perspective, the subsequent gains to 1.2990 may be too meagre for a bullish strategy.

USD JPY (115.05)
Our bullish strategy was an early casualty of a renewed dollar weakness yesterday (apologies). The decline was not huge, but all the dynamism of the recent rally was lost and the market has moved back into completely neutral territory. Strong Japanese machinery orders, exporter selling and a statement by the PBOC were all (unemotionally) blamed for the decline. Interestingly, former arguments, for example about Japanese investor behaviour following a Fed pause, have not resurfaced. Trader conviction does not appear high in either direction. Look for nearby support at 114.30 and at 113.95 (critical). We pin supply at 116.10/20 and at 116.90.

EUR JPY (148.15)
Yen weakness against the single-currency was one of the reasons why commentators had so much difficulty in getting to grips with the USD/JPY. Yesterday’s new euro high got stuck, as expected, at our 148.50/60 resistance. This remains the point beyond which an upward acceleration (149.90) would be likely. To the downside, the first supports are at 148.05 and at 146.90. But, as a result of the new high, we can no longer subscribe to the idea of buying on dips.

GBP USD (1.9070)
Disappointing trade figures and, this morning, a terrorist alert have taken their toll on the Pound – but the dollar has been weaker still. So, would-be buyers have still seen no dip into which they can buy. While Cable holds above 1.8910, a near-term bullish potential to 1.9340 will remain. This support must also be treated as critical, as a violation would announce corrections that could drag the Pound to as low as 1.8605.

AUD USD (0.7710)
Objective achieved. The A$ has soared almost two percent since yesterday and this development is almost certain to have caught many traders on the hop. Beyond this first 0.7710 target level, therefore, we would look for further immediate gains to 0.7810. Support, now at 0.7655/60, would also serve as a new risk-limit for a further bullish view.