The EUR showed its resilience and the strength of its bull trend by bouncing straight back from losses incurred over the previous 24 hours. EUR/JPY fell by 300 pips but regained all of these losses and posted fresh trend highs. All of the big Prime Brokers are reporting very solid EUR demand across the board and Sovereign players were noted buyers of EUR/USD at the overnight lows near 1.3465.
Overall, I still expect to see a period of consolidation for the EUR and for its crosses, although picking a top in EUR/JPY is an exercise fraught with danger. On the economic calendar the Australian retail sales data is shaping as the main event.
Escalating tensions in the East China Sea between China and Japan could again become a more important issue in coming days. This could see risk trades like AUD/USD or AUD/CHF affected as the market is unlikely to want to buy JPY.
USD/JPY has broken above its previous highs at 93.15 and looks certain to close above there as well; yet another technically bullish sign. Corporate offers at 93.60/65 are capping for now.
EUR/JPY has also taken out previous highs at 127.00 but the lack of any explosive follow through does suggest that the bullish momentum is rather moderate. Nevertheless the trend remains bullish and dips are for buying.
EUR/CHF stalled at a 61.8% retracement yesterday and this is a bullish sign, given the strength of the initial rally (see chart). Resistance levels start at 1.2410.
EUR/USD rallied nicely off an interim base at 1.3460 with the help of Sovereign buyers but rallies should now be limited below Friday’s highs at 1.3700. I’d play the edges of this range with a neutral bias.
AUD/USD is stuck in neutral gear between 1.0350 and 1.0600 (see chart) and I still very much favour an eventual break lower based primarily on market positioning. That said, such a break could be minutes or months away so best wait for some confirmation.
Cable broke below solid support at 1.5670 and triggered option-related stops below 1.5650, with EUR/GBP again the main driver.
The NZD continues to be very well supported by Chinese buying interests and USD/CAD is staying surprisingly heavy despite reported Hedge Fund buying.
Good luck today.