Euro

There were some sharp intraday swings on Friday as risk sentiment turned bearish and then bullish but in general the major pairs remain in range-trading mode whilst the Yen stays quite weak. Hedge funds and the retail market have been quick to sell the Yen in anticipation of a governmental change in Japan and much easier BOJ policy. It might well be a case of buy-the-rumour-sell-the-fact but with 4 weeks to go until the election there is still plenty of scope for Yen weakening. Talks on the US fiscal cliff reportedly made some progress over the weekend.

The important level to watch in USD/JPY is 81.50, where an important Fibo resistance level sits (see chart). There have been two attempts to break through this level but barrier protection is also playing an important role and the bullish momentum will fade pretty quickly if this resistance holds. BOJ meeting minutes from last month will be released later this morning and tomorrow’s rate decision and statement will be keenly awaited.

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EUR/JPY has important Fibo resistance at 104.80 (see chart) and CAD/JPY is also testing recent range resistance near 81.50 (see chart).

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EUR/USD is stuck in range trading mode between 1.2650 and 1.2800 and is being dominated by flows and short-term sentiment swings in the EUR crosses. EUR/JPY is bullish but EUR/CHF has started to drift lower again. Sovereign buyers were noted below 1.2700 in EUR/USD on Friday last. Dealers report that liquidity is becoming quite patchy so watch out for ‘air bubbles’ leading to sharp spikes in both directions.

AUD/USD fell below 1.0300 during NY trade on Friday when risk sentiment was at its lowest but the presence of reserve manager bids near 1.0290 certainly encouraged some swift short covering. AUD/JPY will be the pair to watch today, and if USD/JPY breaks higher then look for the AUD/USD to follow suit in the short term.

Cable has benefitted from solid option protection in the low 1.58’s and the immediate downside pressure has been eased. Same as elsewhere, look to GBP/JPY for clues during the Asian session.

Good luck today.