If you know where the stop-loss orders are then you pretty much know where the market is going. Interbank dealers were chatting all day yesterday about the trailing stops below 1.3000 in EUR/USD so it was no surprise to see them triggered. The Moody’s downgrade of 5 regions was the catalyst to set off the stop hunt. Equity markets fell heavily for the second time in three days, with US stocks over 1.75% lower. One of the big prime brokers listed Yen shorts as being at ‘extreme’ levels so it was also no surprise to see the JPY crosses lower across the board.
Main focus this morning will be on the AUD, with the Australian CPI numbers out at 11:30 local time. Macro funds were noted sellers of AUD/CAD yesterday near 1.0250 and the break below 1.0280 in AUD/USD would seem to have swung the pendulum back in the bears favour. Look for the previous pivot at 1.0310/20 to now provide resistance and support should be firm near previous lows at 1.0200(see chart). It remains to be seen whether the bears can break the market out of its range-trading mode but I do prefer the sell-rally strategy on most time frames.
EUR/USD managed to trigger the aforementioned stops below 1.3000 and settled back into a new short-term range after that. The EUR remains reasonably well supported on the crosses (though EUR/JPY longs might need to be careful) and further range trading between broad 1.2750/1.3150 looks inevitable. Current sentiment is slightly risk-averse so selling short-term rallies towards 1.3020/40, looking for a test of the range base near 1.2900, is favoured (see chart).
JPY shorts were reported overnight at ‘extreme’ levels amongst the big professional players and whilst they have more patience than most, it does smell a bit like a ‘Hail Mary’ play as they seek to get on a big profitable trade before year’s end. Based on recent history, it’s more likely that trailing stops eventually get triggered.
There was over $3billion reportedly on the offer yesterday in USD/JPY just above 80.00 so little wonder that it couldn’t rise. Trailing stops now start below 79.50.
Sovereign buyers were reported in cable at various levels around 1.5950 but the amounts were only moderate.
Good luck today.