Movement will depend on patience of Yen shorts: EUR recovers to mid-range levels


The EUR fell again in early Europe as Italian bond yields rose and Italian bank stocks crashed in the wake of PM Monti’s resignation. These moves have since been unwound and we are back trading at NY closing levels from Friday in most of the major pairs.

EUR/USD has rebounded off support near 1.2870/80 where bids were reportedly very solid from all directions. Short-term trailing stops were eventually triggered above 1.2930, and the fact that the market is playing with such tight trailing stops shows that bearish conviction is seriously lacking. Resistance on the short-term charts should be quite strong near 1.3000 (see chart) and the obvious support is at yesterday’s lows. Look to EUR/JPY for any intraday bias.

The uptrend and the severely over-bought technical have both been neutralised on the EUR/JPY short-term charts (see chart). With the general election only 5 days away, and Yen shorts reportedly at extreme levels, selling rallies in the cross seems like the obvious strategy. Resistance should be firm near 107.00 and the short-term target is 105.30.

USD/JPY is stuck in a range between 81.70 and 82.80 and will need to break out of this to generate some momentum. All reports from IMM, retail and prime brokerage sources suggest that Yen shorts are still at extreme levels and the big question is how patient they remain in anticipation of an LDP win in the Japanese general election.

AUD/USD is glued to levels near 1.0480 but its hourly trend continues to edge higher despite the reports of plentiful selling interest at 1.0510/20. It looks like we are destined to have a showdown pretty soon and the market is still talking about large stops above 1.0525. There is nothing much of interest on the economic calendar with Australian business confidence and Chinese new loan activity unlikely to generate much volatility.

Cable is also stuck in range trading mode with option players totally dominating movements on either side.

Good luck today.
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