It’s been a busy start to the trading week with both the Yen and the GBP appreciably lower in the usual thin trading conditions. The HSBC version of Chinese manufacturing PMI is the main risk event on the economic calendar.
Cable has traded below 1.5100 following on from the Friday reaction to Moody’s 1-notch downgrade of the UK’s debt rating. Real money players will be very active in the GBP as this move will force them to readjust their portfolios. There is talk of some barrier protection ahead of 1.5050 and 1.5000 which might halt the slide but it’s probably only delaying the inevitable.
EUR/GBP has made a big move higher, up 70 pips in early trade to test recent trend highs at .8765, and real-money players will be very active here also.
The Yen has weakened on the back of weekend reports that a noted ‘Dove’ Kuroda is set to become the new BOJ Governor. I cannot really understand the over-reaction to this news with EUR/JPY over 200 pips higher than the NY closing level. With a risk event in the shape of the Italian election about to take place, I still fancy playing the Pennant formation and selling rallies to 126.00.
USD/JPY has traded up to highs near 94.75 and I can only imagine that there must have been some sizeable stop-loss orders in play in order for the market to trade 150 pips above its NY closing level.
EUR/USD has edged higher on the back of cross buying in EUR/JPY and EUR/GBP. The Italian election may cause some volatility as results start to seep in but this pair should remain in overall range-trading mode (see chart) between 1.3150/1.3300, driven by short-term flows, whilst the focus is elsewhere.
The AUD is playing second or even third fiddle at the moment with most market interest focussed elsewhere. The UK downgrade may lead to some risk aversion across other markets which would normally be seen as AUD negative but this morning’s Yen move should see some solid demand for AUD/JPY. There is still an overall neutral outlook for the AUD/USD then inside of well-set short-term parameters at 1.0200/1.0375 (see chart).