A mixed end to the week, with the Aud & Yen the biggest losers. More to come

Aud & Yen looking to head lower, with more BOJ/RBA talk coming up today/tomorrow.

A pretty mixed bag on Friday, with the US Dollar soft against the EU majors but still firm against the Yen. The Aud took a caning on all fronts, while the Kiwi which also headed south, recovered well, seeing a big sell-off in Aud/Nzd.  Elsewhere, equities finished strongly at new all time highs – again – , while commodities were steady. It will be a busy week of data, particularly for the US, ahead of the Thanksgiving long weekend. Today sees US Pending Home Sales and Dallas Fed Mfg Business Index, while locally, Deputy RBA Governor Lowe will be doing his bit to nudge the Aud lower. BOJ Governor Kuroda will also be speaking.

EUR/USD: 1.3557

The Euro finished the week strongly, back above 1.3500 after much stronger than expected IFO business sentiment survey underpinned it, and came on the back of the German ZEW investor sentiment survey earlier in the week, which resulted in a 4 year high.

The IFO was at the highest level since April 2012 at 109.3 (exp 107.7), ensuring a positive end to the week for the Euro which was also given a hand by ECB president Mario who played down the chances of negative interest rates in the EU. German Q3 GDP came in, as expected, at +0.3%.

This week sees a whole swathe of data, particularly, early in the week from the US, which will be on holiday from Thursday for Thanksgiving.

Technically, the Euro appears to be on slightly more positive ground at the start of the coming week and certainly the daily DXY does appear to be rolling over, suggesting that the dollar is going to have a tough time in making further gains in the next few days, particularly if the upcoming US data is unable to show any sign of any pick-up in economic momentum.

The Euro is still trading below last week’s 1.3578 peak and this will prove tough to break. Ahead of that the Euro has closed up against the daily Kijun and the weekly Tenkan which both lie at 1.3560 and will be a hurdle, although it finished the week back above the daily cloud, at 1.3530, which should now provide the initial support. Beyond 1.3580 will see an acceleration towards 1.3600 and probably to 1.3627 (61.8% of 1.3832/1.3294), where the descending trend resistance also lies. A break of that will see further progress towards 1.3710 (76.4%). This may be a step too far for now, although the 4 hour and the daily momentum indicators have both turned a little higher and do look positive for some potential gains for the Euro, which looks as though it will receive further support from bids in Eur/Jpy which appears headed for 138.50 area.

On the downside, back below 1.3530, bids would appear at 1.3510 and then at 1.3496(38.2% of 1.3398/1.3557). Below here heads back towards 1.3460 (61.8%) but looks a little unlikely on Monday.

Economic data highlights will include:

M: US Pending Home Sales, Dallas Fed Mfg Business Index

T: US Housing Starts, Building Permits, Case Schiller House Price Index, Consumer Confidence

W: US Durable Goods Orders, Initial Jobless Claims, Chicago Purchasing Managers Index

T: US Thanksgiving Day, German Unemployment, CPI, EU Business Climate, Private Loans, Consumer/Industrial Confidence.

F: German Retail Sales, EU CPI, Unemployment

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EUR/USD: Daily

USD/JPY: 101.25

US$/Jpy closed the week just below its high of 101.34 (76.4% of 103.73/93.78), where it ran out of energy ahead of Japanese exporter sellers ahead of 101.40/50.

Earlier in the day, BOJ Governor Kuroda said that he did not think the yen was at abnormally low levels and he did not see an asset bubble occurring in Japan, but took a bit of heat out of the Yen by adding that he does not see the need for additional easing right now.

The Nikkei closed the week at 15381.72, a 6 month high, with the futures market up a further 85 points at 15485, suggesting that the Yen has more downside ahead of it in the days/weeks to come. The Nikkei and the Jpy have been moving in unison for quite a while, with every rally in the share index indicating a trigger for traders to sell the yen, and the weaker it gets is good news for exports and earnings, further underpinning the equities market.

Technically the US$ looks as though it is going to head further north against the Yen, as do most of the other currencies – with the exception of the commodity bloc -, and it could be that the dollar is not too far away from testing the next major resistance at 101.53 (8 July high). This will not be easy to break and there are plenty of sellers lined up at this level, but if/when it does give way then the way is open for an eventual rise to the major hurdle at 103.73 (22 May high). The daily indicators are certainly heading this way, although the 4 hour charts are somewhat overbought so it may be that we need to kick our heels around here to allow them to unwind before further upside progress can be made.

On the downside, the initial support now is at 101.00, below which would run towards the rising trend support, currently at around 100.50. This currently looks a little unlikely although, with the short term momentum indicators now overbought, some corrective activity would not surprise. A break of the trend support would see a run towards minor Fibo support at 100.25 and below there would be strong bids at 100.00.

Looking for somewhere to buy dollars still appears to be the gameplan, although I am not sure I would want to be buying them up here early on Monday, and we may be able to pick some up at slightly cheaper levels.

Look for a range today 100.85/101.50, and keep an eye out for Kuroda who will be speaking again today and also for the BOJ minutes, which will coming up tomorrow.

AUDJPY 92.85 In the race to the bottom between the Aud and the Jpy the cross has not done a great deal and is about 100 pips lower than this time last week. Resistance remains at the 200 DMA at 94.44, while the initial support is at 92.30 and then at the 100 DMA at 91.30. The weeklies are pretty flat, although the 4 hour and daily charts suggest we could see a bit of early weakness. Overall I suspect that we are in for more choppy, rangebound trade and there are better things to look at.

 EURJPY: 137.30. As we said last week, a break of 135.50 would give the cross some acceleration for a run towards the target at 138.48 (25 Oct 2009 high) and it seems we are now well on our way. Above 138.70 would potentially take the cross much higher, although there are several highs between 138.50/70 that might cause a rejection on the first attempt and I would be doubtful of heading too much above 138.50 – should we get there – given the bearish divergence that is appearing on the weekly charts. The dailies are pointing higher though, so for the time being stay with it but keep stops tight, in place at around 136.50. Retracements could be quite sharp and could potentially take the cross back to 135.90 or even towards 135.00.

 GBPJPY: 164.30. In similar fashion to EurJpy, the cross looks as though it is potentially heading much higher, although this may be a 2014 move, or possibly one for Christmas to make sure that no-one is on it!. The dailies are becoming overbought but have strong positive momentum still and could make a run for resistance at 166.20 (50% of 215.84/116.83) and then to 167.95 (38.2% of 251.09/116.83). I would doubt that we are going too much higher than this at the first attempt and as with Eur/Jpy, the weeklies look as though they could  be running out of a bit of steam. On the downside, the first support is at around 163.50 but here is not a lot under there to stop it tripping down to 162.50, and under there again we could see a quick move to 161.50. While I think we will eventually end up a fair bit higher, the need is to be rather flexible as the corrections could be quick and also quite deep.

Economic data highlights will include:

M: Kuroda Speech

T: BOJ Minutes

W:

T: Foreign Investment, Retail Trade

F: Nomura Mfg PMI, Japan CPI, Household spending, Unemployment, Industrial Production, Housing Starts

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USD/JPY: Daily

GBP/USD: 1.6225

Sterling headed higher on Friday, finishing above 1.6200, assisted by comments from the BOE’s chief economist, Dale, who said that despite having been through a very deep recession, the UK economy has turned a corner and is recovering, albeit slowly, given the general unwillingness to borrow money from the banks.

The 4 hour/daily/indicators are looking as though Cable may want to try the topside once again, although I remain fairly neutral as it may be that we are in for more choppy sideways trade between the recent 1.6000/1.6260 area.

 The tops of the long term channel is at around 1.6240 which will be a tough hurdle, beyond which, 1.6260 is going to be strong resistance as Cable failed it on the last 3 or 4 occasions that it got up there. If it can be overcome, then look for a run towards 1.6308 (21 Sep high) above which could accelerate towards 1.6380 (31 Dec 2012 spike high).

On the downside, we would return towards minor support at around 1.6170, below which would head towards 1.6130 (23.6% of 1.5853/1.6218) although this looks a little less likely  while the daily momentum indicators appear to be picking up some steam. While the price remains below 1.6240/1.6260 (purple line represents the top of the weekly channel) I would be wary of buying it but would feel more confident of doing so once/if/when it is broken.

Economic data highlights will include:

M:

T:

W: UK GDP, Inflation Report Hearings

T:

F: UK Net Lending, Mortgage Approvals

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GBP/USD: Daily

USD/CHF: 0.9068

US$/Chf took a bit of a hit on Friday, heading back below 0.9100 and closing not too far above its lows of 0.9066 (0.9070: 50% of 0.8890/0.9249), with a move lower in Eur/Chf not helping the dollars cause as the Chf found renewed strength in the cross, which has fallen from last week’s high of 1.2350 to a low on Friday of 1.2284.

The dollar is currently sitting right at the bottom end of a developing channel and if this were to give way we should expect further losses towards 0.9028 (61.8%) and possibly to 0.8975 (76.4%) although this is some way off, ahead of which 0.9000 would see good bids.

A turn back to the topside currently looks a bit more tricky and we need to see it back above 0.9100 to restore some stability. I am not so sure that we are likely to see this today, but if wrong, then look for a squeeze back towards 0.9120 and then towards the top of the channel, currently at 0.9147.

For today look for a range of 0.9040/0.9100 but with the momentum looking as though it may be the downside that looks likely to come under pressure.

Economic data highlights will include:

M:Unemployment.

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USD/CHF: Daily

AUD/USD: 0.9170

Christmas must be coming early for the talking-heads at the RBA who have managed to jawbone the Aud down from its 23 October high of 0.9757 without actually having to adjust rates or to intervene in the currency. Quite impressive, and I don’t think the downside is done with yet as the head-shoulder formation continues to play out, looking for a target of somewhere around 0.9000. We have more RBA talk this week, starting tonight, with the RBA Deputy, Lowe, adding his own view on the elevated level of the Aud. This 30th anniversary (Dec 12) is beginning to see downward price action not too dissimilar to that of the first few months of the float all those years ago which also saw a top at around 0.9750, although we have an awful long way to go yet in terms of volatility! Happy memories!!

Quarterly AudUsd chart since 1975. Thanks to KK at Reuters.

The action in the crosses did not help the Aud on Friday. AUD/NZD capitulated, breaking down from 1.1270 to a low of 1.1170, while the EURAUD and GBPAUD both broke out above their recent highs to touch 1.4806 and 1.7725 respectively (see below.)The outlook remains negative for an eventual look at 0.9000 and possibly much lower. The interim points to watch are at Fridays 0.9142 low and then at the minor double bottom from early Sept at 0.9125. Below there would see the Aud run into the Fibo support at 0.9100(76.4% of 0.8892/0.9757). Under that there is not too much to stop it heading quickly towards 0.9000 although there is some minor support at 0.9040.

The 4 hour charts are currently getting pretty oversold and the 1 hourlies are actually showing some minor bullish divergence and so in the short term we should be prepared for the chance of a bit of a bounce, with 0.9200 and 0.9215(23.6% of 0.9447/0.9142) looking likely to be targets. Above that would see a run towards the minor descending trend resistance/38.2% Fibo target at around 0.9257, although this currently looks some way off.

Keep an eye on what the RBA say this week. There is little local data out and direction will depend on international flows, with some of the macro players, I suspect, still caught rather long of the Aud.

As I said last week, it would not surprise me if the RBA are waiting for tapering to begin in the US, at which point they will use the opportunity to intervene in the Aud. The double whammy of that happening would propel it back to roughly where they would like it…a lot nearer 0.8000 than 0.9000! That could take months, as the Fed does not appear to be in any hurry to taper, although some are still talking December. I think we would need some pretty standout data this week for that to be a possibility – and I cannot see it happening before Janet Yellen takes over at the Fed. On the other side of the coin, 10 year US yields climbed to as high as 2.839% before closing at 2.752% on Friday, indicating that the bond market seems to think tapering will start sooner rather than later. You never know , so stay nimble!

EURAUD 1.4780 Having been stuck in a 1.4100/14550 range for the last couple of months, the cross headed sharply higher on Thursday and continued on Friday, closing just below its 1.4806 peak, up  against important Fibo resistance (1.4795: 76.4% of 1.5030/1.4050) and looks as though there is potentially a lot more in it yet. The 4 hour charts are naturally pretty overbought so we should perhaps allow for some consolidation and the chance of a dip back towards 1.4690 (23.6% of 1.4318/1.4806) and potentially to 1.4620 (38.2%). We could event retest the break out line at 1.4550 but this looks doubtful given the positive momentum on the dailies. The upside points to watch are at 1.4795 (76.4% of 1.5030/1.4050), 1.4865 (minor), 1.4928 (22 August high), 1.4994 (5 August high) and then 1.5030 (28 August high). Buying dips looks to be the way of it.

GBPAUD 1.7690. This is in a similar position to EurAud and having broken the resistance at 1.7300 it has headed sharply higher. It looks as though it can probably head higher still but the 4 hour charts are overbought and so we should leave room for dips. These could take the cross back towards 1.7450 and possibly even to 1.7300 although I doubt it. The topside target looks to be the July 2010 high at 1.8088. This could be some way away yet, but buying dips still appears to be the strategy. One thing to be aware of is that while EurAud has yet to reach its August highs, GbpAud is trading now at levels not seen for over 3 years and the dailies, while their positive momentum is strong, are showing some bearish divergence, so caution is warranted.

AUDJPY: 92.87. With both currencies racing lower, the cross is not actually doing too much at present and there are better things to watch. It is gyrating between the 200 DMA at 94.45 and support at 92.30, which lies above the 100 DMA at 91.50. Trade the range for now with a preference to sell rallies for a stronger test of the downside.

Economic data highlights will include:

M: RBA Deputy Governor Lowe Speech

T:

W: Construction Work Index

T: HIA New Home Sales, Private Capex

F: Private Sector Credit

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AUD/USD: Daily

NZD/USD: 0.8192

The Kiwi had a pretty whipsaw day on Friday, bumped around by official comments – this time from RBNZ Assistant Governor Dr John McDermott,  who reiterated the mantra that the Kiwi is overvalued, – and also pushed around by volatility in the crosses, which saw a collapse in AUD/NZD. Having traded a wide 0.8243/0.8124 range, breaking the neckline of the head and shoulder formation,  it eventually found support at the 100 DMA and has come back to close right on the neckline at 0.8195..

Where to from here? The initial move looks to be for the chance of a squeeze to the topside with the short term charts needing to recover from their current oversold condition. If correct, the points to watch are at 0.8225 (38.2% of 0.8393/0.8124) and then 0.8260 (50%), although I would be surprised to see it up there today.

If the neckline holds and we can head lower again, 0.8172 will be the first support (200DMA) ahead of Friday’s low/100DMA. Below there would see some acceleration, which I suspect will be the eventual outcome although patience will be required, for a move towards the S/H/S target of around 0.7850.

For today, use 0.8150/0.8225 as a guide, with a preference to find levels to sell into, in preparation for the expected bigger move to the downside.

Economic data highlights will include:

M:

T:

W: Trade Balance

T: ANZ Business Confidence

F: Building Permits

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NZD/USD: Daily

USD/DXY: 80.69

The Dollar Index has reversed quite sharply from the weeks high of 81.29, to close at 80.69, but is not too far from the previous week’s close of 80.83. All up, a bit whippy and a little confused and I don’t think we are going to see too much clarity in the week to come either.

The dailies are looking a little soft and the MACD’s appear to be crossing lower which suggest further dollar weakness – with the possible exception of US$/Jpy. The weekly MACD’s however, have now crossed higher for the first time since they previously crossed to head lower in June. This does not rule out further downside movement in the dollar in the near term, but I still suspect that it will eventually head higher, but possibly not until 2014. With the ECB and the BOJ still on an easing path, while at the same time, the Fed is looking at tapering the US stimulus programme, it would appear that the stars are aligning for a stronger dollar down the track, which still leaves me preferring to look for areas to buy it.

In the short term though, it looks as though the dollar could remain under a bit of pressure and that the Euro and the EU majors may have some further mild upside momentum, although overall I remain fairly neutral.

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USD/DXY: Daily