US$ rampant. Negative risk sentiment hurts commodity bloc, equities; underpins JPY.

The dollar soared again today, while the commodity bloc and the equity markets took a big hit as risk sentiment was re-assessed causing some rare demand for the Yen. The trend looks as though it has plenty of legs, with the Euro, Chf, Aud and Nzd all making new trend lows and showing little sign of any significant bounce. Today’s action will be derived, in Asia from the Japanese CPI, and later, from the German Consumer Confidence, which is unlikely to assist the Euro, and then from the US GDP, with another solid reading likely to spur the continuation of the dollars uptrend.

EUR/USD: 1.2750

The dollars rampant mood continued today as it crushed the Euro, paying no respect to the supposed strong support at 1.2740 and diving straight to 1.2696 where it finally took a breather and bounced to sit at 1.2750 heading into the NY close.

The German Fin Min Scheuble had commented on the prospects of the ECB buying securitised loans and did not help the cause of the Euro although the main data of the day, the solid Durable Goods Orders and Jobless Claims had little immediate directional effect on the EurUsd.

Today we get the German Consumer Confidence, which could put a further dent in the Euro, although the main risk event is likely to be the US Q2GDP (exp +4.2% annualized), which could well further underpin the dollar if it shows a solid result. The spread between US and German bond yields widened to a 15 year recrd today and this trend looks set to continue further underpinning the dollar, while keeping the long term pressure on the Eur.

Technically the Euro looks to be in real trouble and the predictions of 1.2000 by the year end do not look quite so far over the horizon.

Nearer home, short term charts are attempting to recover their oversold condition and we could see a bit of a squeeze back towards 1.2800, above which would see a run back to the 100 HMA at 1.2820 and then possibly to the descending trend/200 HMA at 1.2870, although the weight of sellers would seem to limit any further gains. I don’t really see what is going to push it up here, aside from the weight of short covering of speculative Euro positions, but further strength would head to 1.2900 and then to the first Fibo resistance at 1.2930.

Back below 1.2700 would head towards Nov 201 low at 1.2660, below which there is little to hold it until 1.2500 (76.4%of 1.2041/1.3995). A break of this would then open up the path for a steeper decline towards the 22 July low at 1.2041.

Medium term positions should stay short but in the near term we could see a minor squeeze and that should act as a sell opportunity as we head lower in the days/weeks ahead.

Economic data highlights will include:

German Consumer Confidence, US GDP, Personal Consumption/ Expenditure, Rts/Michigan Consumer Sentiment index.

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EUR/USD: 4 Hour

USD/JPY: 108.75

Risk positions were unwound heavily today, not only in the equity markets but also in the crosses, which collectively saw some decent demand for the funding currency of choice, the Yen, and caused US$Jpy to plunge from the session highs at 109.30 down to a low of 108.51, from where it has so far put in a mild bounce.

The medium term outlook remains unchanged in that I think the dollar will eventually take out the hurdle at 109.50 and head a fair bit higher, and a soft result from today’s Japanese CPI may be the catalyst to help it on its way. If we do head back here, then above 109.50 would head towards the next realistic target at 110.65 (August 2008 high), above which the dollar would head on to 112.50 (76.4% Fibo level of 124.13/75.56). A break of this would suggest that the dollar is on its way to the July 2007 high at 123.65 although we have a lot of work to do before then

108.45/50 remains solid support, below which would find further bids at 108.35(200 HMA) and then at 108.12 where the daily Tenkan lies. I doubt we are heading below where today, but further solid support would be seen at 108.00.

Buying dips remains the main theme, so stay with the trend.

Use 108.50/109.00 as an initial guide and keep an eye on the US GDP later on. The combination of sift Japan/strong US data could see 109.50 come under some pressure heading into the NY close.

Economic data highlights will include:

CPI.

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USD/JPY:4 Hour

GBP/USD: 1.6315

Cable remains choppy, and after an early dip to 1.6275 when the sell-off occurred in the Euro, it recovered to sit back above 1.6300 after BOE Governor suggested that the point at which we can expect a UK rate hike is approaching, although his comments were not materially different from the recent stance of the BoE, that hikes will be gradual and limited. Currently at 1.6315, there are easier currency pairs to trade right now, and the shorter term charts are giving mixed signals for the coming session.

On the topside, the initial resistance will be seen at the 200 HMA (1.6330) and the 100 HMA at 1.6345. A break of that would suggest a run towards 1.6400 but I don’t really see it above here today.

The downside will find minor bids at 1.6300 and then again at the session low at 1.6275. Below this would head to the 18 Sept low at 1.6240, with further support seen at 1.6230 (61.8% 1.6051/1.6523). A break of this would head back to 1.6160 but looks unlikely at present.

Use 1.6300 as a pivot today, with direction to be dictated by the US data, although there could be a bit of action through the cross after the German data, with Cable again likely to be a beneficiary as EurGbp heads towards the long term target at 0.7750.

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GBP/USD: 4 Hour

USD/CHF: 0.9468

US$/Chf soared to 0.9515 today, almost reaching the 0.9535 target, before retreating to take some breath ahead of the next leg higher, possibly care of a decent US GDP, later today.

It could be that the dollar does need to unwind the shorter term charts and we could continue to hang around current levels, but the overall uptrend remains intact and once back above 0.,9500, I think that we will eventually head on to 0.9535 (July 2013 high), and then to 0.9565 (76.4% Fibo level of 0.9838/0.8698).

The downside will now see buyers at the session low at 0.9450 and then at 0.9430 (minor) and again at 0.9415 (100 HMA) and at 0.9390 (200 HMA). Below here looks a bit unlikely today, but 0.9380 and 0.9360 would be levels to watch, and if seen, would be buy opportunities..

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USD/CHF:4 Hour

AUD/USD: 0.8788

In following the Kiwi lower, Europe took the Aud down to 0.8790 before a bounce into early NY, but the heavy equity markets and the souring risk sentiment saw the Aud head down to 0.8773 and then bouncing a little late in the day to finish at 0.8785, virtually at the target mentioned previously, at the 1.618 Fibo extension of the head/shoulder target at 0.8790.

Having trade to 0.8773, the Aud has touched the major rising trend support off the July 2007 low at 0.7721, at 0.8775 (weekly chart below – purple line) and this could well hold it today as it should be strong support. Eventually though it looks as though we are going to want to retest the January low at 0.8660, but that will take a while.

If 0.8775 does get taken out, then a case can be made for a very much deeper fall in the Aud, for a potential multi year decline back towards the 2008 low at 0.6000 and although I cannot really see it at this stage it is worth noting. In the meantime, a break of 0.8775 would suggest a run towards 0.8660 below which the base of the monthly cloud is at 0.8540 and the base of the major channel is at around 0.8515.

On the topside, look for the chance of a squeeze back above 0.8800 towards 0.8830 and possibly to the 100 HMA at 0.8865, but which if seen would be another sell opportunity.

Keep an eye on the equity markets. If they take another dive and sour risk further, the Aud is going to remain under heavy pressure.

Stay short. Sell rallies

Economic data highlights will include:

China Leading Index.

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AUD/USD:4 Hour

NZD/USD: 0.7925

The Kiwi got hit hard by the RBNZ Governors comments regarding its overvalued condition yesterday, and both Europe and the US added to the Asian losses by taking it down to as low as 0.7912 once general risk aversion set in.

The decline has so far settled beautifully on the target that we mentioned yesterday, at the major Fibo support (23.6% of 0.4892/0.8835 – weekly chart) support at 0.7913, which would be very strong as it is backed up by the top of the monthly cloud at 0.7900. Once below there though, – as the weekly indicators suggest that eventually it will be – there is not a lot to hold it from heading towards the June 2013 low at 0.7682.

The topside looks somewhat limited, and any short squeeze towards 0.8000 would appear to be a sell opportunity, with a SL placed above the 100 HMA at 0.8070. I don’t really see it getting close now, but if we do see a short squeeze, the next points to watch are at 0.8130 (23.6% of 0.8835/0.7985) and then 0.8150 (channel top.)

Stay short and sell rallies seems to be the ongoing theme, although 0.7900 maybe a tough nut to crack over the next session or two..

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NZD/USD:4 Hour