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The Overnight Express: Market Strategy

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G10 FX: The USD and JPY fell, likely as giveback from carry trade unwinds on Friday

Mon, Nov 2 2009, 12:29 GMT
by TJ Marta

The Overnight Express

GBP lost against all the major currencies overnight on concern about the effects of an increase by the BoE in its asset purchase plan. Most economists surveyed by Bloomberg expect an increase to be announced Thursday, with the median forecast being a 50bn rise to 225bn. Otherwise, the USD and JPY fell, likely as giveback from carry trade unwinds on Friday.

DXY – Rally consolidating – The DXY index (76.196) is down overnight, with the USD down against all but the JPY and GBP. The index is consolidating just above 75 after the recent rally from 74.50, the low since Aug’08. Resistance lies at 76.578 (Oct29 high), 76.668 (Oct12 high), and 77.475 (Oct 2 high). Support lies at 75.826 (Oct 30 low), 75.00 (psychological), 74.951 (Oct23 low), and 74.940 (Oct 21 low). Over the past two months, DXY has correlated most strongly with crude oil, the CRB index, gold and the S&P500 (all negative).

EUR/USD – Stabilizing after retreat from 1.50. After a downdraft during the early part of last week, EUR/USD is holding above 1.47. The uptrend in place since Mar remains in place. Support lies at Resistance lies at 1.4683 (Oct 29 low), 1.4578 (uptrend off lows since Mar), and 1.45 (psychological). Resistance lies at 1.4859 (Oct 29 high), 1.50 (psychological) and 1.5063 (Oct 26 high). The short-term correlates for EUR/USD are crude oil and the S&P500 (both positive).

GBP/USD – Can’t hold 1.65. Cable (1.6380) is down overnight, slipping below 1.65 despite strong economic data due to fears about increased debt issuance by the government. Technical resistance lies at 1.6693 (Oct23 high), 1.6742 (Sep11 high), 1.6743 (Jun high) and then 1.7043 (Aug high). Support lies at 1.6252 (Oct26 low).
The strongest correlates over the past two months for GBP/USD have been the DXY (negative), EUR/USD (positive) and crude oil (positive).

USD/JPY – Testing below 90. USD/JPY (89.93) is down overnight. Part of this stems from the decline in the US 10yr yield in recent session, as that correlates positively with USD/JPY. Resistance now lies at 90 (psychological), 92.32 (Oct27 high) and 92.53 (Sep21 high). Support lies at 89.20 (Nov2 low) and then 88.01 (Oct7 low). The correlation of USD/JPY with the US 10yr yield and the US-JP 10yr spread remain significant.

USD/CAD – Down overnight, but rally in place. USD/CAD (1.0796) is down overnight, but the uptrend from mid-Oct remains in place. Support lies at 1.0701 (uptrend off Oct lows) and then 1.0653 (Oct 30 low).
Resistance lies at 1.0870 (Nov2 high), 1.0959 (Oct high), 1.0993 (Sep high), and then 1.10 (psychological). In terms of other assets correlating with USD/CAD, watch the CRB, crude oil (both negative), USD index (positive) and SPX (negative).

AUD/USD – Up overnight, but still looks to be failing. AUD/USD (0.9040) is up overnight, but the downtrend in place through last week appears to be in place. Technical resistance for AUD/USD exists around 0.9200 (held below the last three days of last week) and 0.9329 (Oct high). Support lies at 0.8907 (Nov2 low) and 0.8859 (Oct1 high). AUD/USD has correlated most strongly with equities (S&P500, positive), commodities (CRB, positive) and gold (positive).

Published on  Mon, Nov 2 2009, 12:31 GMT