FX Board: Euro and yen dominating amid weak risk appetite

Key FX developments

• FX traders should note that risk sentiment is in the driver's seat and should have at least one eye on the major equity markets through all of this, especially as we're not trading far from the key 200-day moving averages again in the likes of the S&P500, the key developed market risk barometer.

• Heavy selling in global equity markets was most supportive of the euro today, as EURUSD cemented its move above 1.1000 and USDJPY crumbled to the first key support, the Ichimoku Cloud level.

• When risk sentiment goes weaker, it is all about the relative effects across currencies, with USD seemingly worse affected, followed by perhaps GBP and the commodity dollars and then the JPY jockeying with the euro for top spot, though it wasn't much of a competition today for the latter two currencies. Still, let's watch the 137.00 area in EURJPY, just above which the 200-day moving average comes in.

• EURCHF solidified its break higher by looking above 1.0600 for the first time since March – a new trend in the making until proven otherwise.

• Elsewhere, while the commodity and smaller currencies started the day on a weak note, they regained ground versus the increasingly hapless US dollar later in the day.

• Gold didn't cut much of a profile, and doesn't seem to offer any kind of safe haven status at the moment, but Friday saw a strong bullish reversal and the bears are more like to find traction if risk sentiment improves again and the USD rallies. For gold, then, the sticking point on closing levels looks like the 1,080/1,100 zone.

EURUSD

EURUSD cemented its move above 1.1000 today after flirting with the level on Friday. This makes 1.1000/25 the new key support zone and opens up the topside to at least the top of the descending line of consolidation and perhaps back toward the 200-day moving average as long as risk appetite remains on the defensive.

EURUSD has picked up momentum

USDJPY

This pair is pressing down on the first key support at the Ichimoku daily cloud today, a break of which could open up for the bottom of the cloud in the low 122.00s, which would begin to give the overall chart a rather bearish feel, so it is important for any remaining bulls to see selloffs picked up quickly and for risk sentiment to improve if we're to see new highs beyond 125.00 again.

The yen has been making gains against the dollar

EURJPY

The fight for the upper hand among the defensive currencies is being won at the moment by the euro, which has fought back higher toward 137.00 today versus the JPY. Note the 200-day moving average as the pair of currencies continue to duke it out. Traditionally, the JPY has done better when risk sentiment is weak.

EUR is making gains against the yen

EURCHF

We have a new trend in the making until proven otherwise, as EURCHF closed free of the local range highs amid all of the euro strength. This may alter the market's psychology on the franc's safe haven status, given the lack of interest despite the perilous descent in global equity markets since Friday, and that could have negative repercussion for the franc even when risk sentiment shifts more positive.

The next level of interest is the highest level since the January 15 shock revaluation up around 1.0800.

(Please ignore the closing level on the Friday bar in the chart below – this was due to a spike in the price feed.)

Swissy's on a roll

NZDUSD

It is interesting to note that a currency like the kiwi can rally against the US dollar when the whole world goes into defensive mode – so different from past market cycles and likely due to defensive position squaring as the market has been quite short this pair for some time due to the prolonged downtrend.

Bears will be increasingly vulnerable if we continue to lose downside momentum here and if risk sentiment remains weak.

NZDUSD bears could be vulnerable