Euro

The Yen crosses were sold across the board yesterday, driven primarily by real money flows, and once the flows dried up we saw a modest rebound in the risk trades. Risk sentiment is being affected by the ongoing Greek saga, the US fiscal cliff, and the worsening Spanish economic situation. Volatility is being squeezed out of the FX market, with big orders in virtually every pair ensuring that any progress remains very slow indeed.

Large bids in the EUR/USD between 1.2650/65 are in part related to protection of an option barrier. When these bids couldn’t be filled, even at the height of yesterday’s EUR/JPY and EUR/GBP selling, the market reversed and mild short-covering kicked in. There was more disappointing EZ economic data from the German ZEW and Spanish CPI, and it’s difficult to find reasons to be long of the EUR. Intraday technical analysis suggests that 1.2740 might be difficult to overcome, on the first try at least (see chart).

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EUR/JPY remains firmly in a short-term down trend and needs to break back above 101.30 in order to ease the pressure (see chart)

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USD/JPY is also dominated by option protection ahead of 79.00 which has repelled all the bears thus far. Offers are expected to be very solid near 80.00 so stay in range trading mode for this pair.

AUD/USD has been stuck in unusually tight ranges for quite a while now and overall positioning in the professional market reflects this, with the market sitting basically square. Consumer confidence data today may provide some limited volatility but with sell orders now building between 1.0450/80 and bids seemingly very solid at 1.0350, it’s understandable why the market isn’t getting too involved.

The GBP saw some mild volatility in early European trade with EUR/GBP see-sawing inside a 25 pip range. Solid bids in the cable between 1.5850/60 again proved too strong for the market but there has been little or no rally as EUR/GBP short-covering then weighed on the pound.

Good luck today.