The Federal Reserve minutes showed that many members are of the opinion that additional easing is warranted and this sent the USD tumbling after the release. USD/JPY fell heavily, triggering stop-loss sell orders below 79.00 and again below 78.50 while EUR/USD took out a sizeable barrier at 1.2500. Chinese PMI data today will probably bring some volatility with it and it looks like the summer slumber is finally ending.
As we mentioned yesterday, Prime Broker and retail market reports showed that the speculative market was sitting quite long of USD/JPY and these stops got triggered right after the Fed minutes. A fall of over 1% in 45 minutes shows how skewed market positioning was. The prospect of BOJ stealth intervention near 78.00 should provide decent intraday support (see chart) whereas rallies should meet very solid resistance near 79.00. Back to slow range trading here I think, at least until Bernanke’s speech next Friday.
USD/JPY H4 chart
The fact that risk trades like AUD/JPY fell after the minutes shows that short-term positioning was the main factor at play.
AUD/USD stalled again near 1.0525 and this level is becoming increasingly pivotal in the short term. Yesterday’s BHP Billiton profit result shows that mining industry profits are well down and if today’s China PMI shows further regional slowdowns, then the AUD will continue to struggle on the crosses. I think it’s fair to assume that there will be plenty of stop-loss buy orders now above 1.0540 and this is something to be wary of around the time of the China data.
EUR/AUD is consolidating above 1.1900 and I’m still definitely in the buy-dip camp here.
EUR/USD took out the 1.2500 barrier post Fed and is now consolidating quietly just above there. Asia’s first response to an overnight move is often a contra-move, so I would not be surprised to see a brief dip back below 1.2500 at some stage this morning before the short-term uptrend reimposes itself. I still favour a test of levels near 1.2600 in coming days.
Cable made a nice move higher and large stops were also triggered there above range highs near 1.5800. Plenty of Sovereign interest here to buy dips so the path of least resistance would seem to be up.
Good luck today.