Despite all the flows, risk events, FinMin and Central Bank comments, and general market expectations, we will end the trading week pretty close to where we started. Another excellent advertisement for buying dips and selling rallies! China has a week of holidays about to start and Australia has a long weekend ahead of Tuesday’s RBA so we may see a bit more than the usual Friday positional adjustment.
The EUR tried to break lower in early Europe with EUR/GBP leading the way but momentum was lacking and masses of EUR/USD buyers in low 1.28s held firm. The Spanish budget reform plan was reasonably well received, good enough at least to cause some short-term short covering. The obvious broad range to play in EUR/USD is 1.2815/1.3080 and until this breaks we should stay in range trading mode.
EUR/JPY is often the lead pair in Asia and support again held firm above 99.50 which opens up the possibility of a retracement rally. It is the last day of the financial quarter and the risk of BOJ intervention is much higher on these days. The comments from BOJ board member Sato earlier this week were also much more aggressive than usual. Burden of proof however rests with the bulls as the bears are in control across most time frames (see chart).
The interbank USD/JPY market reports plentiful bids near 77.50 with stops directly below. There is also a mass of Japanese economic data due for release including CPI, uunemployment, retail sales and industrial production but this is unlikely to have any major effect on the market.
Demand for the GBP from asset and reserve managers remains very strong although there was good two-way business overnight with US corporates selling into GBP/USD rallies. Resistance is firm now near 1.6300 but there will be heavy stops just above there. Support levels are also very clear near 1.6130. Range trading still the obvious play but watch for sharp gaps higher should the stops go off.
EUR/GBP dipped to .7922 in early European trade as dealers tried to trigger large stops below .7910. The failure to do this saw a mild short-covering rally and we are back near yesterday’s opening
The AUD/USD has bounced nicely to 1.0450 but should start to encounter some more serious resistance. I’m happy to sell into this rally as I feel that the market will turn more bearish as we near the RBA decision on Tuesday. The main technical resistance level to watch is last Friday’s highs at 1.0510 (see chart) and a break back above there would have the bulls re-taking control.