The EU summit had not been expected to deliver any major decisions but the market looks like it was slightly long, in the forlorn hope of some major announcement. These short-term longs were trimmed on Friday and EUR/USD will start the week sitting just above the psychologically important 1.3000 level. Similarly the AUD/USD will start the week sitting on a previous pivot at 1.0310/20 and much of what happens this week might be determined by what happens at these two important levels.
Equities fell by 2% in the US on Friday and this will have a negative effect on risk-sentiment in Asia. For the second day in a row, there was a nasty move higher in USD/INR on Friday as hedge fund positions in the derivatives markets got squeezed. The FX market continues to take leads from elsewhere and generates momentum only through stop-loss hunts.
EUR/USD is currently in a slow up-trend (see chart) and it could easily fall to 1.2900 or rise to 1.3170 without altering this picture appreciably. There was some disagreement at the EU summit regarding the timing of bank recapitalisation, and some of Frau Merkel’s comments created tremendous angst particularly amongst the Irish delegation, but the market is ignoring this it seems. Spanish yields are near 6-month lows and pairs like EUR/GBP continue to exhibit bullish strength, so being patient and buying big dips in EUR/USD seems still like the obvious play.
AUD/USD is beginning the week on a previous pivot near 1.0320 and there is more support behind there at 1.0290 (see chart). Tomorrow’s CPI is the main event this week and movement prior to that will depend on risk-sentiment, which will most likely come from the equity market. I have no strong view here in the short-term, but I still very much like the
USD/JPY will begin the week above former resistance at 79.25 and that is a bullish indicator but interbank reports suggest that there are plentiful sellers above 79.50 and that stops are building below 79.00; so perhaps we may get a downside cleanout first?
GBP/JPY looks to be the most interesting of the JPY crosses with a somewhat imperfect topping formation on the short-term charts(see chart). The top would be confirmed by an increase in bearish momentum below 126.70.
Cable is reliant on Sovereign bids 1.5950/70 to hold it up and if they disappear then it could start to fall swiftly and EUR/GBP remains the most resilient of the recent bulls moves in EUR crosses; all told the GBP looks weak.
Good luck today.