We had some pretty wild gyrations in the aftermath of the US election results with FX markets following risk-sentiment leads from equity markets. The fact that the election result was clear-cut ensured a period of euphoria on stock markets, with shares rising quite sharply before quickly reversing after the ECB downgraded growth forecasts. The market is now starting to focus on the US ‘fiscal cliff’ and risk-sentiment is also likely to be pressured whilst these negotiations get
It was back to the good-old days for EUR/USD which essentially is 40 pips below yesterday morning’s open yet we probably saw a total 500 pip movement in that time as the market swung on risk-sentiment shifts. There were some big flows reported in the crosses, with EUR/JPY leading the way, and overall sentiment towards the EUR still seems to be shaky. Sovereign players were again reportedly buying EUR/USD on dips towards 1.2750 and they will slow down any potential fall.
EUR/JPY took out support lines near 102.15 (see chart) and looks to have scope for a deeper retracement towards 100.20. This pair will likely lead the way during Asian trade and is worth watching closely.
USD/JPY is for me the clearest trade in the market, with most players long and bullish I think there is potential for a nasty stop-loss driven sell-off. If risk-sentiment turns really sour through the fiscal-cliff negotiations yet the USD remains pressured after the Obama re-election, then short USD/JPY would seem to me to be the obvious play. With a 5-wave up-move now complete, I think we could see a deep retracement towards stronger support levels near 78.65 (see chart).
The AUD/USD stalled at heavy sell orders near 1.0470 and has begun to retrace as risk sentiment soured. I don’t expect any huge sell-off, with reserve managers reportedly on the bid near 1.0350, but as yesterday’s figures showed the market is almost completely square on the AUD so there is scope for plenty of movement once the market starts building positions. Today’s jobs data will also bring additional volatility and analysts are expecting a slight rise in the unemployment rate. I will look to start covering shorts on a test of congestion support above 1.0340 (see chart).
The NZD fell hard in late NY trade after shocking jobs data, with the unemployment rate coming in at 7.3% against expectations of 6.7%.
EUR/AUD touched technical support levels near 1.2220 but held firm (see chart).
Good luck today.