Speculative euro-longs fear upper range border

EURUSD (1.2820)
Despite data that pointed to more US rate hikes and a speech by the new Treasury Secretary that reiterated his department’s ‘strong dollar’ policy, the euro closed at practically the high of the day. The rally was far from a one-way move however. The single-currency suffered a setback after both the PCE deflator release and after the ISM number. For those who were sitting on longs – for example, the remaining optimists in our recent EURSentiment Survey – there were ample arguments to justify taking profits ahead of the upper border of the perceived range at 1.2850. The price action therefore confirms our suspicion that such speculative accounts will sell all that they need to ahead of this threshold and that few offers will remain beyond. It also confirms that, as last week, alternative source of sustained demand is present in the market – one that is obviously unconcerned by trading ranges.

Our preferred strategy is unchanged: above 1.2850 we would target 1.2990 and beyond (1.3310). To the downside, although a new strategy within the range is not particularly appealing, we would nonetheless make a bullish try following a retreat to 1.2650. Such a move would swell the ranks of the range-traders and leave the euro susceptible to a break. The risk-limit would be set at 1.2610.

USD JPY (114.40)
A mini-squeeze yesterday briefly hoisted the dollar to our first resistance at 115.30. This shows that some traders were prepared for falling prices. But the bounce also allowed others to enter the short position – seduced by arguments about seasonal repatriation flows and Japanese rate hikes. Thus, although the risk remains for further weakness to 113.35, we are not keen to propose any bearish strategy. An additional upside hurdle remains at 115.95.Beyond there, a more sizeable (and exploitable) squeeze would unfold to 118.50.

EUR JPY (146.70)
The cross distanced itself from its critical 145.70/75 support yesterday and recovered to a 147.00 peak. It is too early to trumpet a resumption of the uptrend – the euro still faces tough resistance at 147.40 – so we would continue to favour a bearish strategy in case of a violation of the support even though it is now a bigfigure away. The target would then be 143.10/20.

GBP USD (1.8770)
The Pound has filled the initial upside potential that we indicated yesterday; the next hurdle remains at 1.8965. As yesterday, even though we can suggest higher supports at 1.8690 and at 1.8515, they are both still too far away to provide an adequate risk-reward profile for a bullish strategy.

AUD USD (0.7675)
The RBA rate hike is out of the way. However, today’s strong retail sales data seem to have stimulated fresh hawkish noises in the market. But weren’t traders talking about the need for two rate hikes just last week? Clearly, some of the former bulls liquidated their longs yesterday and may not have had the time (or seen the price) necessary to rebuild them. We now favour an immediate upward continuation to 0.7810. Intermediate resistance is sighted at 0.7705. The risk-limit must be set at 0.7630.