FX Technical Strategy
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Green shoots' roots in commodities
Wed, May 13 2009, 07:17 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
As the market picks on the underlying bullish themes that have been building over the past few months the natural inclination is to be wary. In the last release, the favoured currencies were Sterling and the commodity currencies against the US dollar coupled with the more benign environment that a drop in volatility would imply. Whilst from an equity perspective a consolidation/ corrective phase is becoming more compelling, the strength in commodities still underpins the pro-risk theme. The reasoning being that whilst it is still probable that this is a bounce in a bear market, the risk of being caught long dollars and long treasuries if the low is behind is greater than selling dollars now and reversing the strategy if proved wrong.
In this regard it is notable that gold is holding above the $900 level, which can no longer be attributed to the 'fear factor'. With oil edging towards $60 and sugar prices matching the heights of the commodity boom phase of 2008 at 16.00 (although off the 19.73 peak of February 2006) the positive view is still compelling. Summer is approaching and the markets will be taking a breather soon one way or the other, but for the moment the cautiously bullish strategy continues.
Published on Wed, May 13 2009, 07:17 GMT
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Top and tail outlook for majors
Wed, Apr 29 2009, 06:13 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The underlying pro risk theme remains the preferred strategy as the markets continue to recover from oversold levels. Despite this, a consolidation phase is warranted at current levels and given the extent of the recovery short term retracements should be expected. Whilst the long term outlook continues to favour a cautious approach, support should remain for Asian equity markets and although core markets could under perform, the synchronicity of these trends should ensure further gains from a medium term perspective. In the FX space, the bullish sterling theme remains (although 'airpockets' remain a risk) coupled with an underlying bullish tone to commodity related currencies.
The trend for volatility remains downwards. Despite this, the target of single digits for one month euro dollar vols. by May (10th March release) could be slighlty out of reach. The market is anticipating some elevation in the short term but if this does not materialise, the downside prospects will represent a double whammy and confine the markets to further range trading into early H2.
Published on Wed, Apr 29 2009, 06:13 GMT
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Base case for sterling
Thu, Apr 23 2009, 06:07 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The key driver of FX continues to be asset market sentiment and the on going prospects for equity markets. Understandably, participants are anxious to know whether the ultimate low in equities has been hit, implying positive prospects for pro-cyclical currencies. The answer comes down to timing once again. The primary trend for now is assumed to be downwards, but this does not preclude periods of equity gains. These gains, even in servere bear markets, can be substantial and can give the impression the market has changed trend. The recent rallies in equities is, by most key participants, viewed as a bear market correction, but this does not also mean a considerable medium term recovery could develop before the market succumbs to broader downward forces. Hence the current sharp retracement could still be part of this medium term rally which should favour buying dips in sterling and commodity currencies.
It is fair to say that 'normal market' correlations are still in holiday mode and the broader technical set-ups for FX vol. continue to trend lower. So whilst this strategy may have to be reversed at pace, the upside risk/reward profile favours a positive medium term outlook.
Published on Thu, Apr 23 2009, 06:07 GMT
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Risk appetite is reduced
Wed, Apr 8 2009, 06:39 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The coming weeks look set for a range-bound market. A few weeks ago, I suggested that FX volatility was too high and could even trade in single digits by May when looking at one month Euro dollar vol (below). This has favoured an oversold bounce in sterling and is likely to continue for now against selective currencies. Whilst the dollar may well weaken further in the medium term, the 'grand sell off' for the dollar remains a long term story (as proposed in the last release). This, in my view, is tied together with inflation and a collapse in bonds.
The reason for this 'delay' is simple. Equities are unlikely to have hit the ultimate low. A correction in a bear market can look exactly the same as long term base which is why there are many proponents expressing bullish views.
However, whilst this is a short term scenario, the technical set-ups in the major equity markets still imply further downside, which will keep the dollar in demand for a while yet.
The stock rebound we have seen so far is encouraging and started with out performance of Chinese equities and reversing commodity prices that the broader market has only just picked up on. But it is fair to say that the occassions when risk appetite does return (as it has now) it will remain vastly reduced, so dollar weakness has to be viewed with caution.
Published on Wed, Apr 8 2009, 06:39 GMT
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Dollar weakness is a long term story
Wed, Mar 25 2009, 12:30 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
A question that will be in the forefront of traders' minds over the coming weeks will be; has the dollar bear trend started? Both inflation and a weak dollar are expected to be developing themes, but whether we are at the start of the trend looks open to debate. Whilst I do expect commodities to trend higher, yields to rise and the dollar to sell off, the most important issue here is timing. This means that either your investment outlook has to be very long term (over three years) or short term orientated (one to two weeks- although even this feels like a long time). Hence for the moment the weak dollar trend should continue, but there is still scope for dollar buying to return in the medium term to upset this trend, before the 'grand sell off' begins. In the here and now, equities have rebounded from their oversold condition, much as expected, and this has promoted a wave of dollar selling. As mentioned previously, sterling will benefit from this scenario as it is 'ultra cyclical' and the sharp bounce against both the yen and euro look set to continue. Notably, euro dollar has resisted another upside break-out attempt and bond yields haven't reacted like a market looking for an excuse to sell, both of which suggest some caution in this trend.
Published on Wed, Mar 25 2009, 12:30 GMT
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Drop in vols the first stage to risk appreciation
Thu, Mar 12 2009, 06:19 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The short term market orientation does not seem ready to change. This is hardly surprising given the journey the markets have travelled over the past 18 months. However, it is becoming increasingly clear that the price of risk is simply too high and by virtue of this situation, it is discouraging risk appetite. If the market has a heightened expectation of a risky environment, then there is no value in paying for this. The value comes from looking at what the market does not expect. As FX vols continue to ease, this will actually provide a positive back drop for the next main trend in FX. The downside is that we may still be some weeks away from this.
The default position for now is to look for dollar strength and monitor the signs of a counter trend move. Base metals such as lead have put on a decent rally with copper continuing to build a base. The outlook for gold looks soft short term and a break of $900 would imply a deeper correction to $850. It is easy to dismiss these signals as the market wants to focus on the bearish angle. However with oil continuing to hold firm and the baltic dry index extending gains, consideration has to be given to a dollar sell off, driven by an oversold bounce in stocks.
Published on Thu, Mar 12 2009, 06:19 GMT
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The odd decouple
Thu, Feb 26 2009, 05:48 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
It's pretty clear that if the FX /equity market correlation was even slightly behaving then euro yen would be trading sub 110.00 and cable around 1.3500. Whilst on a pure price basis equities have been a sell, the reverse has been true of dollar yen with both positions causing sentiment to be cautious as the market stretches the inverse correlation. It could be argued that sterling's resilence in the face of equity market weakness represents accumulation with the reverse true of the yen. Hence an extended rally in sterling may be at hand. This view is probably best expressed through sterling yen as, until cable breaks free from the 1.4000/ 1.5000 straight jacket, participants seem content to occupy the sidelines.
Gold continues to correct from its excursion above $1000. The long term outlook is bullish, but short term the rally looks spent. Once again this would normally imply dollar strength, but with inverse correlations at play, the easing of safe haven demand could put pressure on the dollar. Given the current state of flux, the sidelines doesn't look a bad place to be at the moment. As discussed, there are some interesting trades around, but for now they are the exception rather than the rule.
Published on Thu, Feb 26 2009, 05:48 GMT
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Equities on the brink
Wed, Feb 18 2009, 06:14 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The euro is under increasing pressure. The past few months have seen equities range trading and, although there have been positive signs to note, the equity markets continue to look vulnerable to further falls. With major supports approaching, the risk is developing for a breakout trade to the downside. DAX futures have managed to recover three times from 4066 support, however this coming fourth test does does not look likely to hold. Hopefully I am wrong and this is simply a bear trap, but for the moment the strategy for this week has to reflect the downward trending prospects for the euro and increased safe haven buying of dollars. Interestingly, this is happening to the exclusion of the Swiss franc and Japanese yen, implying a break-down of the recent inter-market relationships. In this vein, gold is posed to break over $1000, traditionally a bearish dollar signal, but as gold is taking on the form of a safe haven currency, the relationship is less significant.
Published on Wed, Feb 18 2009, 06:14 GMT
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Oil required to keep FX moving
Thu, Feb 12 2009, 06:17 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The 'ultra-cyclical' sterling has had more than a decent bounce as conditions pointed to an oversold currency. The main question from here is can it continue to rally? Whilst sterling is experiencing a corrective retracement at the time of writing, the overall bias remains positive.
The reason for this lies in the firmness of bond yields, the bid nature of commodities and the extending rally in Chinese equities. As long as these factors continue on the current trajectory, the bias remains positive.
Clearly this scenario is supportive of the commodity currencies outright and negative the yen.
Last week after a period of hibernation, the dollar yen woke up with a start. Whilst in the short term the trend has stalled, the bias remains positive. As equities squeeze higher both the yen and dollar should weaken as the safe haven premium subsides. Commodties should have a magnification effect on this, but whilst the commodity rally broadens, oil continues to lag.
However, the sharp rally in the baltic dry index, (currently up another 159 points at 1974) may start to change sentiment towards oil, despite the obvious over supply situation. This is supportive of the Norwegian krone also which continues to exhibit signs of strength against the dollar and yen. However a push through $44.00 for crude oil could be that catalyst as pressure starts to build.
To push the commodity story along, platinum has finally cleared the $1,000 level and silver continues to lead the way higher. It is also worth watching sugar futures which have pushed through $13.00 and in sterling terms are close to record highs.
Published on Thu, Feb 12 2009, 06:17 GMT
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It's better to travel than to arrive
Thu, Feb 5 2009, 06:00 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
This old market saying has relevance to the current position of the financial markets and particularly sterling. Last year the equity markets plunged and bonds yields were pushed to wafer thin levels as the market was preoccupied with survival and protection of capital. Whilst this is understandable from a short term scenario, the next few months will be important to see if that capital would be better rewarded elsewhere. The current indications paint a more positive picture, even if they remain tentative.
Firstly bond yields continue to rise in core yields from the two year towards the most sensitive 30 year space. This needs to be explained as it is possible the market is tentatively looking for bargain basement opportunities outside of the safety of fixed income.
Secondly, the commodity markets continue to base and push higher despite the bearish sentiment. Oil is a notable laggard, but the bears should have firm control of this as I haven't heard of a single short term bull, yet the market remains above $40.00.
And finally sterling, the "ultra cyclical" currency that was bashed by everyone from hedge funds to the man on the street has continued to rally against the major currencies together with the crosses. Sterling swiss in particular looks set to break a key level at 1.700 completing a base with euro sterling potentially heading back to 0.8279 over the coming months.
The areas to watch into next week are the commodity currencies as they have similar catch up potential to sterling. Also of particular interest is the Norwegian krone where a return to a bull run in the energy market would see a strong recovery. A lot hangs on core equities holding current supports, but the strategy holds whilst above 8,000 in the Dow and 4,000 in the FTSE.
There will be time to reverse if this doesn't work and indeed it may well prove to be a short lived scenario, but for the moment the market is showing positive signals that are being burried in a deluge of bearish sentiment.
Published on Thu, Feb 5 2009, 06:00 GMT
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Dollar weakness ahead
Thu, Jan 29 2009, 06:29 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
As we near the end of the first month of trading, volatility has remained elevated and sterling has enjoyed (if that is the right word) the majority of this. The recent bearish press was recognised by a few experienced contrary traders that a rally was close, but the timing was open to question. Having seen the initial boost, the question is do we fade the rally or go with it? It is premature to think sterling has long term upward potential against the dollar, but it should squeeze further to 1.4400. Beyond this, the outlook is tied to the strength of commodities and the relative stability of equities. Whilst these themes could fold quickly, for now the resilience of commodities remains and has started to impact bond yields. Should this continue, the market may not be that far away from a medium term risk appreciation strategy.
In 2008 we saw correlations wax and wane, typically with equities and the yen, but the lack of dollar weakness on the back of precious metals' strength (more specifically gold) now seems to be correcting. When analysing which currency to buy, one can end up with a circular argument of not wanting to invest in any, which has led many people to gold. However, the movement in long bond yields yields (the reason for which is still open to debate), could push investors towards risk appreciation trades if it continues much further.
The currencies to watch this week are therefore sterling against the euro where a minor top has been triggered. This could well develop in to a major top in the coming weeks, but we need more confirmation at this stage. The 'high yielders' could then by rotation rally towards the end of the week as long as equities build on current gains. It should be noted that sentiment is still lurching agressively, keeping many longer term players on the sidelines and giving short term traders a challenging environment. However the development of more consistent and manageable trends should not be far away.
Published on Thu, Jan 29 2009, 06:29 GMT
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Is the dollar close to turning?
Thu, Jan 15 2009, 11:38 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The first two weeks of the new year are usually a good period to avoid from a trading perspective, but once again the market has managed to deliver in excess of a month's worth of price action in just a few trading days. Whilst it is generally acknowledged that volumes are thin, those that have kept their powder dry will hopefully be encouraged into the market in the coming trading sessions. As volume starts to increase, dollar weakness is the expected prevailing theme.
The current market's expectation that European bond yields have to fall in line with UK & US yields has so far caused the current weakness in the euro. The main sticking points with regard to extending this trend against the dollar are equities and commodities. It is clear that precious metal demand has increased. Whilst this can be discounted on the market's safe haven attitude, the increasingly positive signals in base metals and the modest reversal in the baltic dry index and softs are implying that the market can not get too complacent about ever falling commodity prices. Euro bears should then look to euro swiss and euro sterling as the main way to express this view, but euro dollar should find support (possibly long term) between 1.30 and 1.3150. This is not a clear cut situation and hopefully into next week we should get some clarity.
Should this theme continue to build, the main currencies to benefit will be sterling, the Norwegian krone, and the commodity currencies to the detriment of the US dollar. The former is potentially in the process of creating a major top, but like everything in the markets, timing is key. A push into 7.29 would see the first attempt to fade the trend, but given the significance of resistance at 7.31, caution is still required.
Published on Thu, Jan 15 2009, 11:38 GMT
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Commodities turn
Fri, Jan 9 2009, 08:24 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The past month has seen some exceptional moves in the FX markets and although we are only in the first few days of 2009, the volatility continues unabated. Two major underlying themes that continue to build are the prospect for a base in equities (whether this is long term is open to debate) and the gradual reversal of commodities. Whilst a month ago, commodity buying was limited to gold and selective softs (and a bullish view met with derision), it has since broadened to base metals with the primary moves being built on. At the moment the market is taking this as a dollar positive signal, but the prospects for this to lead to a rapid dollar correction are growing.
It is a consistent feature that inter-market relationships can wax and wane, but if equities continue to squeeze, euro yen should follow the dollar yen rebound, putting the risk towards a broadly weaker dollar. This could be a large catch-up play.
Naturally, sterling has benefitted from the current stability in equities and, to some extent, commodities. The sharp reversal in euro sterling reflects the extent of the dislocation between what's going on in the asset markets and sentiment. If equities continue to rally, and the technical indications are that they will, euro sterling should continue to ease to sub 0.9000 and potentially all the way back to 0.8100 over the coming months. Cable should also benefit and whilst one can not be completely confident of a reversal when key support is so dangerously close at 1.4350, the longer term prospects favour a push through 1.6000, again contigent on the currently bullish scenarios building in commodities and equities.
Naturally the most direct play on the commodity currencies is to buy the (high?) yielding currencies against the yen and dollar (the former currently outperforming). As a benchmark guide, the Australian dollar targets 0.7600 and is further support by the improving scenario in emerging market currencies.
Whilst the first two-weeks of the New Year is usually a period to avoid, the current moves look increasingly compelling, especially when the bond markets are showing signs of a reversal.
Published on Fri, Jan 9 2009, 08:24 GMT
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Could equities spark a dollar sell off?
Wed, Dec 10 2008, 11:56 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The bullish dollar scenario has weakened. Whilst a major sell signal at has not yet ocurred, the evidence is shifting towards a weaker dollar. As market volumes continue to thin and intermarket relationships (equities and the yen) diverge, the normal clues to the next big move are less reliable. Perhaps this is a message that this historic year will close with a drop in volatility and range as a contrast to the price action for the rest of the year. However, thin markets are more notorious for large moves so a year end squeeze is still a latent risk.
Given that a surprise would take the form of a commodity and/ or stock squeeze, the charts for equities remain of interest. Once again they have pulled back from the brink and staged a solid rally. With core equities down between 30-50% year-to-date there is a big dent to fill, but the current sentiment continues to ignore the short term resilience. The price action appears to be base building and if the rally can be maintained over the coming sessions, the pressure for inaction will be reversed. It is fair to say that the market may not be aggressively buying commodities, but the time to be selling is passing. As a refelction of this, the Australian dollar has held above a key stop at 0.6240 for the last few weeks and has begun to move higher.
Again this is still tentative, but should be closely monitored for signs of acceleration. The chart of Aussie Swiss franc is hovering below a major trigger level at 0.8182. Again this would suggest a base is building which could spill over into the other commodity currencies and perhaps even sterling.
Euro sterling is clearly under upward pressure and a move towards 0.8800 is expected.
Against the dollar, traction is still limited and a retest of 1.4570 support can not be ruled out. However, if the backdrop continues to improve, sterling will very quickly look under valued.
Published on Wed, Dec 10 2008, 11:56 GMT
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Mixed signals
Thu, Dec 4 2008, 07:44 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
At the end of last week there was a sense of cautious optimism as euro dollar had failed to breach key support at 1.2400 and was travelling in the opposite direction. Equities appeared to be finding a floor with the Dow putting some distance between the 7450 intra day low and S&Ps nudging 900 once again. Even commodities had given some positive signals with gold extending gains above $800 and cocoa and cotton pushing higher. Typically of the current market environment however, this scenario has not only reversed, but has done so at speed.
With the potential for sentiment to change once again by 180 degrees, the market will be understandably cautious in an already risk averse environment. With long end yields softening and equity volatility rising, the outlook favours an appreciating dollar and yen to the detriment of the commodity currencies. Considering the sentiment, the 'high yielders' have performed remarkably well, but this could prove to be a temporary scenario. The next few weeks should see some clarification, but for the moment a flexible, short term approach seems sensible.
Published on Thu, Dec 4 2008, 07:44 GMT
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Sell−by date
Wed, Nov 26 2008, 06:50 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
Has the dollar trend turned? Whilst this is a difficult question to answer, the evidence has swung away from extended dollar strength to cautious dollar weakness. Despite many opportunities to break the low, euro dollar failed to extend beyond the 1.2330/90 floor last week and this lack of follow through has caused selling of stale dollar longs. Naturally the markets are very short term focused, but with gold over $800, and silver and platinum finally trying to base (although rhodium still has yet to find support), the evidence has swung towards dollar and yen depreciation.
Equities remain key to this strategy and, as the market remains (understandably) sceptical of the prospects for short term gains, the potential for a continued squeeze appears to be the more likely outcome. The prospects for a floor in oil and soft commodities add to the bullish scenario, which should see the Australian, New Zealand and Canadian dollars continue to gain over the coming weeks. A potential reversal set-up in the VIX adds fuel to this scenario.
Published on Wed, Nov 26 2008, 06:50 GMT
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Pounds to ounces
Wed, Nov 19 2008, 06:41 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
As volatility remains exceptionally high, the current strategy continues to be cautious and flexible. From a trend perspective, it is suspicious that the euro dollar has failed to extend below 1.2332 given the external opportunities for this to occur (weaker equities, persistently soft commodities). However, the bias for the moment favours this scenario for a test of 1.2135. This could be an important week for this trend. Failure to break lower will encourage some reduction in dollar longs and revert the risk once again for a counter trend retracement. This will happen in a major way at some point, but for the moment, the broader strategy favours the dollar and yen.
The key mover last week was sterling. The break of 1.5270 was a very important signal and hence remains a pivotal level for a sterling recovery. Whilst sterling has rebounded from an oversold position in recent days, a return to 1.45 and 0.8600 is expected against the dollar and euro.
Published on Wed, Nov 19 2008, 06:41 GMT
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Soft commodities set to firm
Thu, Nov 6 2008, 12:43 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
Anyone who began trading for the first time over the past 12 months will have witnessed an unprecedented period of market volatility with all asset classes having massive swings. Normally traders atune themselves to the market conditions relatively quickly, but if you have cut your teeth in this market environment, then it may be very difficult to adapt to what could be a significant drop in volatility over the coming weeks.
Naturally, flexibility is key. The expression 'never saying never' has never been more apt in respect to current conditions. It is true that a bit of volatility is good for the market. However, you can have too much of a good thing and we could be finally easing towards more usual trading characteristics. This does not mean that there will be a lack of opportunities, because we are not far from the beginings of some new major trends (dollar bearish). However, a consolidation period is long overdue.
In a week of major event risk, the net effect could be to keep particpants on the sidelines. The chart of the VIX index appears to be topping out, even though one would expect the chances for knee-jerk reactions to have increased this week. This does imply further strength for the commodity currencies against the yen and a recovery for sterling. However, the profile for the latter could involve a decline towards 1.5400 against the dollar before the next major rebound.
How low can commodities go? There is some evidence of short term support emerging for soft commodities. How sustainable this is remains to be seen. When the rebound comes, however, it could well be aggressive and now is as good a time as any. Naturally this will underpin the commodity currencies, but also worth considering are the commodity related emerging market currencies such as the Brazilian real and Chilean peso.
Published on Thu, Nov 6 2008, 12:43 GMT
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Gold weighs on sentiment
Fri, Oct 24 2008, 06:17 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
Clearly the current market developments are favouring the yen. The equity markets remain vulnerable and the downside could well be accelerated by continued commodity price drops.
The deflationary effects of the drop in soft commodities, base metals and particularly oil have also played into the dollar's hand (although the yen is still outperforming and will continue to do so). However, the long term effects of these moves will be unwound as aggressively (perhaps even more so) as they are occuring, although timing is naturally key, particularly with volatility so elevated.
With gold edging towards key support at $730 and looking increasingly like a medium term top, the dollar looks set to remain in favour for the coming weeks and possibly into year end. It also implies we have yet to see the base (particularly against the yen) in the Canadian, New Zealand and Australian dollars, despite a couple of false dawns. The swiss franc having weakened through a key level at 1.15 against the dollar should have a further squeeze, but the euro and sterling look set to take the brunt of the yen's surge.
Published on Fri, Oct 24 2008, 06:17 GMT
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Dollar outlook remains bearish
Wed, Oct 15 2008, 10:34 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
Last week saw the end of an historic chapter in financial markets. With the equity markets in a climatic selling mode, the indications are for a medium term recovery for equities. However, it is unlikely to represent the end of the longer term bear market.
Given this scenario, a recovery in oil and soft commodities should be expected, although a short term range whilst the market forms a base can not be ruled out. This also suggests a recovery in the stricken emerging market currencies together with the core currencies which were most affected by the unfolding crisis.
As the decline in commodity prices, coupled with the drop in equities, magnified the drop in the high yielders, the reverse scenario should also be true. Given the sentiment change, the developing trends should be for further appreciation in the high yielders, together with a rally in sterling against the US dollar and euro.
Published on Wed, Oct 15 2008, 10:34 GMT
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Dollar slide is crude
Thu, Sep 25 2008, 06:47 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
In last week's release the question was asked: is the US dollar bull trend over? The expectation was that we would see confirmation over the following weeks in the form of a broader decline, following in the tracks of the dollar yen. It may have seemed like a minor point that the dollar, during its bull phase, did not appreciate against the yen, but this was important to underlying structure of the market's positioning. In other words it showed the dollar was not in a primary bull trend and a reversal was at risk. Having seen the first phase of this decline unfold, a consolidation period is not unwarranted. However, the dollar should continue to weaken over the coming months with the previously weak commodity currencies gaining in momentum.
Volatility in all markets is at record levels and naturally a flexible approach has to be maintained, but the evidence of a floor in commodity prices continues to become more concrete, further fuelled by the weakness of core equities. This environment should further encourage flows into the swiss franc and yen, the ongoing core strategy, and underpin the moves in precious metals.
Published on Thu, Sep 25 2008, 06:47 GMT
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Yen strength continues to dominate
Wed, Sep 17 2008, 05:50 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
Is the dollar bullish trend over? This certainly has become a more pertinent question of late and as the Swiss franc tentatively joins the yen in pressuring the dollar, the potential for a broader dollar correction starts to look likely. There are still some flies in the ointment however. Whilst gold has found some support, platinum and paladium continue to decline with soft commodities yet to find any significant support so far. In support of the bearish dollar scenario, US bond yields have slumped and equities teeter on the edge of some significant support levels with further downside likely. This mix makes for a short term jittery market and certainly a flexible approach will remain. Once the dust settles, I remain a long term dollar bear and as the weeks unfold, further confirmation of this strategy should develop.
Progress has been made with dollar yen continuing to work its way down towards the 100 target and the yen crosses dominating market activity. Appetite to pick up the Swiss franc on the crosses has also increased and should continue to extend from here with euro swiss targets at 1.5333. Dollar swiss targets 1.08 and then parity from here, but a break of the 1.10 this week is required to increase momentum.
Published on Wed, Sep 17 2008, 05:50 GMT
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Cable unstable
Wed, Sep 3 2008, 11:30 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The trend for the dollar continues to push higher, but despite this scenario it should be noted that the yen has been the stronger of the two currencies and in technical terms this does suggest non-confirmation of a dollar bull market. Clearly the dollar has pushed higher against it's major counterparts with sterling and the commodity based currencies taking the full brunt of the correction. However it still remains a fact that dollar yen topped out over 110.60, therefore making the yen the main trade against the majors and crosses. Naturally there is scope for the yen to fall into line, but if so the why the delay? A corrective move over 109.00 is definitely possible, but targets remain at 106.00 from a two-week perspective and any eventual unwinding of dollar longs is likely to be equally aggressive.
For the time being, with no signals in the price action confirming any buying interest and gold slipping dangerously towards the 800 level that could precipitate another major correction, the high point for the dollar has yet to be confirmed. Also with volatility so high, flexibility has to be key this week, but for the moment the scenario points to a cautiously positive dollar strategy.
Published on Wed, Sep 3 2008, 11:30 GMT
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Cautious dollar strength
Wed, Aug 20 2008, 08:54 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
In last week's release, we discussed the potential for extended short strength for the US dollar, although the context for this remains against a long term bear market. Given the speed of the market's move, the potential for an overshoot is large and picking exact levels for a turnaround becomes more problematic. However, the targets for euro dollar were at 1.4722 and whilst the squeeze continues, it is difficult to stand in the way of dollar strength and an extended move into 1.4500 support can not be ruled out from here.
The signs that argue for caution are not necessarily the extent of the dollar's appreciation, but the underlying potential for another downleg in equities and the softening of US bond yields.
As with everything in the financial markets, timing is key. Gold remains an important canary for the dollar's fortune. Whilst an initial bout of short covering and buying has fizzled out, the $750 support level should attract some longer term players into rejoining the trend. Given that the signals have moved from a clear dollar buy to mixed, the currency pair that led the way upwards (dollar yen) should be monitored as the first to lead the dollar back down. At the very least it should stay defensive, allowing further downside for euro yen.
Published on Wed, Aug 20 2008, 08:54 GMT
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Gold to lead
Wed, Aug 13 2008, 06:07 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The potential for an aggressive dollar rally was discussed in last week's release. The speed and extent of the markets' move are not surprising considering the number of technical levels aligned in close proximity. The broadness of the dollar rally from core to emerging markets implied a major unwinding of short positions and was mirrored by the technical set-ups in precious metals.
The main question now is: do we fade this move or is there more to come? The answer to both could be yes. Firstly there should be more dollar strength to come in the core markets and with commoditity currencies still trending, the first clue to a turn around should come from there.
Secondly, the long term dollar trend does remain bearish and commodities are still in a major bull phase. Whilst these corrections are large and we have not found a low just yet, the overall trend remains to the upside. So at some point the dollar bearish strategy will be put back on the table. In the meantime euro sterling should be monitored closely. Once the inevitable sterling bounce does happen, a move through 0.7760 would complete a major technical reversal.
Published on Wed, Aug 13 2008, 06:07 GMT
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Upside down
Wed, Aug 6 2008, 08:22 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
Although the major currency markets are still broadly range bound and the summer trading conditions are still apparent, the clear technical set-ups in both precious metals and soft commodities continue to underpin a medium term recovery for the dollar. The price of platinum has dropped aggressively, which has led the way for gold and if the $850 level is breached, the implications are for $720. This is mirrored in the soft commodity markets which has caused a magnified impact for dollar appreciation against the Australian, New Zealand and Canadian currencies. With US yields relatively stable, the vulnerability of core bond yields makes the dollar an attractive catch up play.
Because of this, and despite the current trading conditions, the potential for an aggressive dollar rally should be factored into the medium term strategy against the majors. Dollar yen could lag this move as euro yen finally moves into a trend, but the major 108.60 level still represents a break-out risk. Dollar swiss should also be drawn towards the 1.0622, a break of which is a major signal.
Published on Wed, Aug 6 2008, 08:22 GMT
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A day is a long time in the FX markets
Thu, Jul 24 2008, 07:00 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
A day is a long time in the FX markets. Sometimes because nothing is happening and it feels like a week, others because sentiment can turn on a cent. At the start of the week it seemed clear that the dollar was building for another break into lows, but no less than a day later, equities are rallying, gold has dropped (led through platinum) and oil ignored a raft of bullish news to complete an interim top. Soft commodities continue to retrace and all of a sudden the market appears to be in a risk taking mood.
This is evidenced by the break upwards in sterling yen through 213.98, which completed a major reversal pattern. It has also taken the shine off the Australian dollar and although the New zealand dollar looks in worse shape, an extended correction seems likely.
Given the contrary mood at the moment, the formerly strong Eastern European currencies are reversing their gains, mainly against the dollar and sterling at a rate which implies a broader squeeze. In this environment, sterling should be the main beneficiary as sentiment has been so bearish across all currency pairs. This implies the much awaited break-out in euro sterling is not to be, but does point to 2.02 once again for cable.
Published on Thu, Jul 24 2008, 07:00 GMT
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Dollar under a shadow as gold shines
Thu, Jul 17 2008, 12:44 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
At the time of writing the dollar has moved into the anticipated break-out strategy with the favoured yen and swiss franc appreciating towards long term targets at 100 and parity respectively. The broad appreciation of the yen is interesting as it plays catch up to the activity in the equity markets. The 'break-down' of the correlation in the yen and vix index was discussed in last week's release with the conclusion that a sharp yen correction was likely. This has led to euro yen dropping through stops, but this was always a risk and the expectation there was for a last squeeze higher.
With cable finally breaching 2.00, the path to 2.04 key should develop over the coming weeks, although this has temporarily dented the bullish euro sterling view and taken momentum out of the break-out. Broad US dollar weakness is evident with the Australian, New Zealand and Canadian dollars' appreciating strongly. The Australian dollar continues to correlate well with energy price rises and continues to be drawn towards the parity objective. No doubt the dollar decline will be punctuated with sharp counter-trend retracements, especially given the strong bearish sentiment of late, but overall this continues to be the favoured strategy.
Published on Thu, Jul 17 2008, 12:44 GMT
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Back to square one
Wed, Jul 9 2008, 12:05 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The anticipated euro dollar break out wasn't to be and the market has dropped back into the centre of a range. Whilst the dollar bear story has clearly weakened in the short term, the risk over the long term remains to the downside and, after what could be another fortnight of range bound price action, a break-out should be forthcoming.
Interestingly, despite the drop in equities, precious metals have remained range-bound and traction in the yen has been very limited. Whilst relationships can break down, there is also a risk of a sharp correction in the yen, although there does not appear to be any immediate risk of this. Indeed euro yen continues to try and hold over the 2007 resistance at 168.95 and should attempt a final squeeze.
Euro sterling continues to be painted into a corner. The break-out risk favours the upside, but clear resistance at 0.8001 is the main hurdle. As the trigger lines converge for a break out, we should be close to a resolution. All in all the market does feel very short term in orientation, but hopefully will not remain this way for too much longer.
Published on Wed, Jul 9 2008, 12:05 GMT
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Dollar bear trend close to resuming
Wed, Jul 2 2008, 11:37 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
In the last release, the discussion centred on the prospects that the dollar bear trend was close to resuming. Whilst a straight line move may not be forthcoming due to the current market environment, the risk for dollar swiss to hit parity and and euro dollar to break through 1.60 remains.
Although it's a familar argument, the technical trends in commodities remain strong and the precious metals market looks set to eject from the broad ranges to the upside. This further compounds the flight to quality/ risk aversion trades. This continues to make the yen and Swiss franc attractive with dollar yen targets back at 100 and then 90.00 and sterling yen easing back towards 200.00 once again.
With equities completing major topping formations (Dow breaching the Jan 22nd low) the upward pressure on short term US rates has clearly eased, although volatility remains high.
Published on Wed, Jul 2 2008, 11:37 GMT
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Download Full FX Technical Strategy
Fri, Jun 20 2008, 09:57 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
Since the last release the markets have been broadly range bound, although from an intra-day perspective volatility has been high. Unfortunately this type of price action has the effect of keeping market participants sidelined until clearer signals appear on the daily and weekly charts.
The intermediate strategy has been to buy sterling and the dollar against the previously strong currencies, i.e the Swiss franc, yen and euro, looking for a counter-trend retracement. Whilst this is still the favoured view, for the moment, we could be approaching the end of this strategy (though in weeks rather than days) where the main themes of a strong yen and swiss franc return.
Relative stability in the equitiy markets is gradually eroding and whilst bond yields have risen aggressively, the reasons for this are not necessarily positive for the dollar from a long term perspective.
Opportunities (or risk) may be confined to short term trading for now, but a return to the trending markets is coming into focus.
Published on Fri, Jun 20 2008, 09:57 GMT
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Range for a change?
Fri, Jun 6 2008, 13:06 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The cat is out of the bag as far as the bullish dollar and sterling strategy is concerned against the yen, swiss franc and euro. With the markets in consolidation mode and unwilling to chase the dollar higher short term, a retracement/consolidation phase could be in order. It is even tempting to completely reverse the dollar bull strategy at this juncture purely on the rebound in commodities, but although gold has rebounded from the key $850 level, it remains off the recent resistance high of $950 and can comfortably bounce towards $900 and still be in a corrective phase. The pressure for US bond yields continues to the upside, although this is not the revelation it was a few weeks ago and similarly the direction for equities continues on an upward bearing, both positive underpinnings for the dollar.
However, the context for this move is still a corrective phase in a long term decline for the US currency despite the prospects for a multi-week corrective period. When the trend turns again, it could be very aggressive, but for the moment the outlook is cautiously positive.
Published on Fri, Jun 6 2008, 13:06 GMT
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Range for a change?
Thu, May 8 2008, 06:15 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The cat is out of the bag as far as the bullish dollar and sterling strategy is concerned against the yen, swiss franc and euro. With the markets in consolidation mode and unwilling to chase the dollar higher short term, a retracement/consolidation phase could be in order. It is even tempting to completely reverse the dollar bull strategy at this juncture purely on the rebound in commodities, but although gold has rebounded from the key $850 level, it remains off the recent resistance high of $950 and can comfortably bounce towards $900 and still be in a corrective phase. The pressure for US bond yields continues to the upside, although this is not the revelation it was a few weeks ago and similarly the direction for equities continues on an upward bearing, both positive underpinnings for the dollar.
However, the context for this move is still a corrective phase in a long term decline for the US currency despite the prospects for a multi-week corrective period. When the trend turns again, it could be very aggressive, but for the moment the outlook is cautiously positive.
Published on Thu, May 8 2008, 06:15 GMT
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Dollar recovery to broaden
Wed, Apr 30 2008, 11:32 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The bullish dollar and sterling scenarios discussed over the past few weeks continue as the inversion of market trends cascade the financial markets. As the broader market latches on to the prospects for a sterling and dollar to recovery, a cautious approach has to be maintained in the very near term. However, the orignal signals that implied a recovery was imminent remain broadly in place. The final piece of the jigsaw discussed in last week's document was the potential for a fall in precious metals and gold has duly breached the $900 barrier with cracks appearing in a wider range of commodities. Clearly this has implicatons for the CAD,NZD, NOK and AUD going forward.
Whilst the medium term trends point to dollar and sterling strength against the majors (most notably against the previously strong yen, Swiss franc and euro) there are still some elements that need to fall into place to increase the momentum. Firstly, the commodity reversals could do with broadening to the energy sector. Secondly, the current retracements in precious metals need to develop into full blown downward trends rather than testing the lower end (of an albeit wide range) and finally, whilst the bond yields are set to rise further, a short term retracement needs to be factored in given the pace of the recent moves.
The emerging dollar trend is very likely to be touted as the start of a long term recovery although paradoxically you may note a number of participants who were previously bullish on the dollar switch to bearish in the next week or so. Whether this is a medium term or long term recovery will appear indistinquishable at this stage (if indeed the dollar does continue to recover). However, I have not changed my long term bullish view of the yen and Swiss franc and fully expect the equity markets to reverse the gains as we look beyond the three month time horizon.
Published on Wed, Apr 30 2008, 11:32 GMT
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Two out of three ain't bad
Thu, Apr 24 2008, 06:22 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The broad lack of trends over the past week, exacerbated by the thin markets, have given every reason to keep to the sidelines and maintain a defensive approach to the markets. Whilst euro dollar has traded into all-time high territory and may well squeeze further, I detect a shift in sentiment that could well see a broad dollar rally in the coming weeks, although my long-term view remains resolutely bearish on the US currency.
The reasons for my change in view have been mentioned over the past few weeks, but broadly speaking there are three ingredients to spark a dollar rally. Firstly, a rise in US yields and change in sentiment for short term interest rates, which we have been discussed in my bond technical weekly. Secondly, a recovery phase for equities and, finally, an easing of commodity prices.
Clearly the sticking point is the outlook for commodities and whilst I have been bearish/cautious for the precious metals market over the past few weeks, the range-bound price action continues to dominate. Interestingly, soft commodities are showing mixed signals and, whilst a few months back I was calling for broad rises, the trends have turned or are stabilising for an increasing number of soft commodities.
Whilst reasons for a rally are irrelevant if you do not actually see this translated in the price, I have also mentioned recently that the primary trend drivers, the yen and swiss franc have both turned against sterling and are gradually softening against the dollar. With sentiment on the US currency as it is, I consider a range to be a bullish signal. Next week should be very important as we should have confirmation from the commodity markets as to the next trend direction. With oil pushing record highs, the divergence in this asset class is becoming more pronounced, but at the very least, the situation has changed from clear trending price action that began in August 2007.
Published on Thu, Apr 24 2008, 06:22 GMT
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Ranges call for flexibility
Wed, Apr 16 2008, 06:37 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The FX markets have been a frustrating place over the past few weeks. With the broad markets in consolidation mode, the guessing game of trying to predict the next trend break-out has called for close scrutinty of the short term charts from bonds to commodities. Despite this, the conclusion still points to a range-bound market.
Given the close proximity of euro dollar to all time highs, a break-out strategy has to be considered. Last week I discussed the possibility of a dollar rebound and given that we are at the same levels in dollar yen and dollar swiss from last week, this is still a possibility. The fact that the dollar has maintained a range when sentiment has been so negative argues for caution in a dollar bear strategy. Usually when the markets are giving mixed signals like this, we get a combination of both strategies, i.e. a break into all time highs for euro dollar followed by a drop back into the range and then a recovery phase. The next few weeks should see a resolution of the uncertainty with a return to trending opportunities, but for the moment flexibility is key.
Sterling continues sufferto against a broad range of currencies, showing only modest support against a broadly soft New Zealand dollar. Whilst the trend in euro sterling is mature, there are no specific reversal signals beyond a contrary market opinion. Hence the 0.8100 target may well be achieved shortly with cable once again threatening to breach key support at 1.9650. Whilst I remain a long term bull for cable, the short term pressure argues for a test of 1.9400.
Published on Wed, Apr 16 2008, 06:37 GMT
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Make hay while the dollar shines
Wed, Apr 9 2008, 12:25 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
Having seen some very good trends over the past few months, the main trades of buying the yen and swiss franc against the dollar have eased into a range where we await the next signals. The next few weeks could see a reversal of the weak dollar trend as equities stabilise and bonds and commodties ease lower. This will probably be viewed by the market as an indication that the main dollar bear trend is over. However, my long term view remains dollar bearish despite the apparent reversal.
Whilst stability should benefit sterling, it is clear at the time of writing that the UK currency is under pressure. What has been notable is sterling's failure to capitalise on stability in the broader markets. Whilst 0.8100 was a long term target for euro sterling, factoring in retracements and consolidations, it appears this may be hit shortly with implications for a move towards 0.8300 longer term.
Pressure is also apparent in cable which has just breached 1.9730, a key support area where the next major level comes in at 1.9400. Clearly sentiment can swing to the opposite direction and in the current thin market a flexible view has to be considered, but for the moment the dollar could be close to a medium term rally.
Published on Wed, Apr 9 2008, 12:25 GMT
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About change
Wed, Mar 26 2008, 06:28 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
A consolidation phase is probably a welcome respite for both bulls and bears of the US dollar and the shortened trading week gives the opportunity to take stock of the recent moves in all the financial markets. Whilst I remain a long term dollar bear, my stop in euro dollar was hit and I have taken this as a signal to exit the dollar yen and dollar swiss positions looking for a counter-trend retracement.
Whilst it is difficult to say how long the stability will last, the prospects for commodity prices to ease and bonds and equities to unwind from the recent fear based trading should drive the trends towards levels where fresh opportunities will present themselves. There is a risk that the trends will resume sooner than expected and a flexible approach in the current environment is key.
With commodities in retracement mode, the Canadian dollar should remain under pressure against sterling, the US dollar and its high yielding counter parts. A possible topping formation in oil could also weigh on the currency over the coming weeks.
The equity market stability should allow euro sterling to ease back towards 0.7690/0.7720 support, although any close over 0.7850 would revert the risk towards the longer term upward trend.
Published on Wed, Mar 26 2008, 06:28 GMT
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How long can you push a trend until it breaks?
Wed, Mar 19 2008, 06:36 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
How long can you push a trend until it breaks? the answer to that is it depends and anyone who tries to answer the question with any certainty is bound to have been caught short of euros, Swiss francs and yen over the past few months. Whilst it is clear that the market is finally coming round to my view that safe haven assets are the place to be, the next question to ask is should we put a contrary position on and start buying dollars?
Complex as it may seem, I think we may be in a double bluff situation. i.e. there are people who want to appose this trend because it's gone "too far", when in fact the contrary view could be to sell dollars still.
The antidote to this uncertainty is to roll stops up (or down) and let the market decide. Whilst the arguments about the short term direction of the dollar and equity markets rage, I remain a long term bull of the Swiss franc and yen with long term targets at 0.90 and 90 approaching against the dollar and an equity market bear.
Euro sterling continues to push higher and my target at 0.8100 remains in prospect. I also remain a perennial bull of cable, but it will continue to be caught in crossfire selling of sterling yen and sterling swiss.
Published on Wed, Mar 19 2008, 06:36 GMT
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And the trend goes on
Wed, Mar 12 2008, 06:41 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
Not much has changed over the past few months. The direction for US interest rates has continued to the downside and long term forecasters have remained bullish on the dollar. As I have mentioned before, I am a contrarian in this respect and whilst my view has been formulated by the technical picture of the markets, it is interesting to me that the long term views are still as positive as ever on the greenback. Hence once we have had the inevitable correction in the trend, I maintain a long term bearish view for the US currency.
We hit my long term target of 1.54 and the condition of the equity markets continues to deteriorate, which puts the focus on 1.60 as we approach the thin Easter trading period. The Yen and Swiss franc continue as the favoured currencies with dollar swiss approaching my long held target of parity and dollar yen hitting 102.00. Long term targets are at 0.90 and 90.00 respectively.
Euro sterling continues to trade higher with 0.7720 the next interim target and long term potential for 0.8100. The news for sterling is not all bad though as Cable hit my interim target at 2.00 and should squeeze to 2.05 over the coming weeks.
Published on Wed, Mar 12 2008, 06:41 GMT
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New dollar bear phase could be close
Fri, Feb 29 2008, 05:33 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
When will volatility return to the FX market? Soon hopefully, but in all honesty I think we could be just a few weeks away from some major moves. Why? As more players stand aside, the potential for a large move from a thin market increase. I still favour a downward phase in the US dollar and as euro dollar edges towards the range high, the temptation to enter short term short positions on a basis for a drop back will increase. It could be these positions that are squeezed out on a move through 1.4920 and then 1.4968.
The message from commodity prices also favours further weakness in the US currency. From oil to precious metals, the current price acceleration will keep the pressure on the dollar to the downside and the New Zealand, Australian and Canadian dollar underpinned. The potential for oil to take another run at $100 should see the Canadian dollar break out of the sideways price action with potential once again for 0.9500 over the coming weeks.
The stability in equities is notable. Any potential squeeze from here is likely to support sterling, which has absorbed a large amount of negative information. I remain a long term cable bull and the coming weeks could well see progress towards 2.00 as bond yields underpin the currency.
Published on Fri, Feb 29 2008, 05:33 GMT
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Taking stock
Thu, Feb 21 2008, 09:41 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The past few weeks has seen little in the way of major trending signals for core currencies and this impasse may well last for a short while longer. Having seen some good trending price action into 2008, the market was due a consolidation phase to set the stage for the next major moves. Whilst there has been short term pressure on the yen and swiss franc, both the dollar and sterling have been unable to build on these gains, which means the risk could be reverting towards the broader trend direction (i.e. downwards)
Sterling swiss is once again at the lower end of its 2.12/18 range with sterling yen price action taking the form of a symmetrical triangle. This once again puts the focus on my long term targets at 2.07 and 200 respectively.
A similar scenario is developing in dollar swiss and dollar yen as a symmetrical triangle formation continues to unfold in the dollar index. Euro US dollar should push towards 1.48 and then 1.50 over the coming weeks although euro yen and euro swiss risk remains to the downside.
Having failed to break key support at 0.7390 in euro sterling, the focus has turned towards potential upside and a move towards 0.8000. Support at 0.7520 should hold interim retracements.
Published on Thu, Feb 21 2008, 09:41 GMT
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Two−way traffic
Wed, Feb 13 2008, 11:55 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
It has been remarked upon that the dollar is holding up well in the face of bearish news. This has been extrapolated into a long term case for holding the dollar simply because anticipated rate cuts have been absorbed into the price. Whilst in the short term the corrective phase could well continue, the long term fate of the dollar will arguably hang on the direction of equities, which technically look set for further weakness this year.
Given this scenario, there seems little reason to expect anything other than a continued reduction of risk and a move into the yen and Swiss franc. My target of parity and 102.00 remains for dollar swiss and dollar yen respectively whilst euro dollar will continue to be buffeted by cross currency appetite in the euro yen and euro swiss (both of which have broad downside risk).
This scenario adds further weight to my cautious view of emerging market currencies and whilst the weakness in the rand could be viewed in isolation, the range of currencies moving from a neutral to sell continues to increase.
The fall in euro yields has been well flagged and the fact that euro dollar has eased lower has more to do with this realisation than a strategic move into the US currency. The technical picture in euro dollar reflects the balanced view between the two currencies and a broad range seems a likely interim scenario.
The broad range in Cable continues, although we are arguably at the lower end of this range. The primary sterling trades in the yen and Swiss franc continue to mirror the US dollar whereby short term sterling strength is an opportunity to sell looking for 200 and 2.00 respectively. The next major trend in euro sterling is open to debate. Sterling has been unable to capitalise on a broadly weaker euro whilst upward break-out attempts continue to run out of steam. My preference is for a weaker euro, but until a break of 0.7390 occurs a flexible strategy is sensible.
Published on Wed, Feb 13 2008, 11:55 GMT
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Swiss and Yen in temporary retracement
Wed, Feb 6 2008, 06:30 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The consolidation phase continues and in the interim this has prompted a squeeze in short yen and swiss franc positions. This has been encouraged by a relief rally in equities and a consolidation in core and european bond markets. Whilst intra-week we saw progress on short dollar positions against the yen and the swiss franc, the momentum has reversed for the time being.
For this week, further dollar and sterling strength is possible against the yen and swiss franc. This is being driven more from a short term trading environment than a strategic change of thesis. It should be noted that sentiment remains dynamic and with equities approaching an area which is arguably at the top end of the recovery phase, I lview this rebound phase as a longer term opportunity to buy the swiss franc and yen.
Published on Wed, Feb 6 2008, 06:30 GMT
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Walking the line
Wed, Jan 30 2008, 06:43 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
As mentioned in last week's release, the market hit long term targets in sterling yen and sterling swiss, hence the potential for a rebound or consolidation phase increased substantially. Whilst long term yen and Swiss franc strength remains a key strategy, a broadening of this consolidation phase is not unwarranted.
This scenario may prompt the currently range bound euro dollar to take another run at the all time high at 1.4968 with dollar swiss support at 1.0834 likely to come under pressure as a descending triangle formation unfolds. The dollar index (shown below) continues in a range, but this is taking on the form of a symmetrical triangle, implying another phase of dollar weakness is approaching. Cable continues to squeeze higher as per my preferred strategy with targets at 2.00 coming into focus, although resistance between 1.9880 and 1.9620 is strong.
Published on Wed, Jan 30 2008, 06:43 GMT
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Repatriate games
Wed, Jan 23 2008, 06:36 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
Volatility has been a key feature of the currency markets and a flexible approach to trading strategies will be key, especially over the coming weeks with pronounced equity market swings expected. My core view of buying the yen and Swiss franc remains valid, but the currencies against which they will be bought will switch depending on the broader characteristics of the market. The dollar has broadly benefited from repatriation and a revaluation of euro interest rates. Whilst this argument can prop up the dollar in the short term, I still target 1.600 for euro dollar and parity for dollar swiss once the current bullish dollar phase is over. This could be some weeks away, but for now selling the euro against the yen is the primary trade.
Sterling yen and sterling Swiss franc have hit key levels and the argument for a rebound is very strong despite the long term bearish objectives. Cable continues to languish, but I still see this as a correction in a long term dollar bear trend and look for an eventual move back to 2.00.
Published on Wed, Jan 23 2008, 06:36 GMT
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Dollar weakly
Tue, Jan 15 2008, 06:51 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The dollar decline continues, driven by my favoured two currencies, the yen and Swiss franc. Although most attention is focussed on euro strength and the euro dollar rate, it should be noted that both the Swiss franc and yen are stronger still. Dollar swiss has already matched last year's low, achieved on the 23rd November at 1.0892 and I continue to look for parity over the coming weeks.
That said, the resistance high at 1.4968 in euro dollar should break this week and my long term objectives remain at 1.60. Whilst a slowing of the move could be attributed to euro yen selling, the break-out should produce a sharp move as stops are triggered. The dollar is also under pressure against key Eastern European currencies with the Czech koruna and Polish zloty remain strong. Notably the Icelandic krona remains weak with euro krona targets at 97.60.
Euro sterling extended gains through 0.7500, against my view, and although further upside can not be ruled out, sterling does look oversold against the dollar so a rebound back towards 1.9800 is possible.
Published on Tue, Jan 15 2008, 06:51 GMT
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Gearing up for a trend
Thu, Jan 10 2008, 06:37 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The main themes for the US dollar for 2008 are consistent with my views from last year and as the market gears up for a trend, traders are bracing themselves for a period of above trend volatility for the foreseeable future. This is in stark contrast the market dynamics a year ago when low volatility brought about the carry trade.
The trends for dollar against the swiss and the yen continue to move in accordance with my longer term bullish view for these low yielding currencies. However, a period of consolidation or even retracement my be a healthy development to prevent a market becoming too polarised.
Sterling remains in the limelight. Whilst further pressure seems likely for the euro up towards 0.7500, I remain sceptical of gains much beyond that level. Sterling dollar is trying to find support at current levels and an oversold rally may be on the cards next week. However, against the yen and swiss franc I continue to look upon rallies as an opportunity to sell sterling.
Published on Thu, Jan 10 2008, 06:37 GMT
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Dollar reality returns
Fri, Jan 4 2008, 09:00 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The outlook for 2008 is very interesting. There seems to be a large division of views as to where the markets will head next from currencies to stocks. The dominant call in the currency markets still seems to favour a recovery for the US dollar in 2008 from a longer term perspective. Whilst flexibility is key, my long term view of the US currency remains contrary to this as the longer term trends come to bear on the dollar. This includes the currently weak sterling.
The next couple of weeks should be discounted from a long term trend basis. We may not get a true indication of the market's positions until the next few weeks are out of the way, but this does not necessarily mean the volatility will drop as the thin markets present short term opportunities.
Overall my strategy remains unchanged from 2007. I continue to view the rebound in the dollar as a short term foothold and I expect the currency to remain weak throughout 2008. The euro should remain strong for now with any break through the prior high at 1.4968 clearing the way for my 1.60 target. The yen and Swiss franc remain the favoured currencies for this year with targets at 90 and parity respectively.
Sterling remains weak and a move to 0.7500 is my target against the euro. However, I am doubtful of further moves beyond 0.7500 at this stage. Sterling is entering a broadly oversold status and should be due a rebound at that point. Sterling should stay consistently weak against the yen and swiss franc with targets at 207 and 2.18 respectively for Q1 2008.
Published on Fri, Jan 4 2008, 09:00 GMT
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Long term Dollar trend should come to bear
Thu, Dec 13 2007, 06:51 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
As the year draws to a close, the interesting feature for the US dollar remains the short term strength set against potential for longer term weakness in 2008. This broad brush view of the dollar's outlook is the inverse of the general market's expectations which satisfies the contrary element of my strategy. It has been clear for some weeks now that the broad US dollar sell off was no longer the one way street it was claimed to be and as prospects for interest rate cuts have been fully absorbed by the market, the rebound should continue.
However, this does not mean the trend next year will be dollar positive and as sterling recovers from its oversold staus, a move back towards 2.11 should see a broader appetite to sell the US currency. Whilst the yen and swiss franc lose ground against the dollar on the back of a rebound in equities, it should be noted that the dollar has fallen a long way and any interim recovery is fully consistent with a continued bear phase. With the euro US dollar chart building into a head and shoulders reversal pattern, a move down towards 1.44 into year end should be expected. Despite this, my bias is to buy euros at this level (which implies a completion of the pattern, but for the full target of 1.4180 to fall short) given the failure for US dollar Norwegian krone to extend from a similar pattern. However, any move through 1.4820 would be an early Christmas present for the dollar bears.
Published on Thu, Dec 13 2007, 06:51 GMT
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Dollar rebound is not a new trend
Wed, Dec 5 2007, 07:10 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The US dollar continues to appreciate against a broad range of currencies with a notable rebound against my favoured currencies, the yen and Swiss franc. Whilst this scenario may continue in the short term, this does not change my longer term expectation of broad yen and Swiss franc strength in 2008. I view the current phase as a rebound of an oversold asset, rather than the dawn of a new trend. Of course I could be wrong, but falling 2 year US yields continue to underpin a bearish dollar (long term) strategy.
The US dollar Swiss franc rebound back to 1.1300 resistance could represent a good risk reward sell looking for parity next year. Dollar yen objectives remain at 102 into year end with 90.00 my Q1 2008 target. Clearly, with the potential of US dollar appreciation against the commodity currencies, selling the Australian dollar, Canadian dollar and Norwegian krone against the Yen and Swiss franc remains a favoured strategy. However, given the volatilty, selling into rallies rather than low breaks seems sensible as the moves are part of a reversal phase. I am expecting big trends here next year and any short term frustration should eventually give way to a smoother trending environment.
Published on Wed, Dec 5 2007, 07:10 GMT
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The trends remain the same..
Wed, Nov 28 2007, 06:40 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
With euro dollar close to hitting my long term target of 1.50, is this enough to call an end to the positive euro trend? The short answer is no. As mentioned in the previous release, the US dollar is now selectively weak and not the broad sell it was a month ago. However, this does not mean the overall trend will change any time soon, despite the prospects for a consolidation phase.
Naturally the main currencies I continue to favour are the yen and Swiss franc with any interim recovery in equity markets likely to be short-lived. My long term target of 108 has been hit in dollar yen and 1.08 in dollar swiss, however, I remain US dollar bearish for 102 and 1.05 into year end, and 90 and parity respectively in Q1 2008.
The second key feature is the end of the carry trade. I continue to expect the yen to strengthen against the so called commodity currencies with the Australian dollar, Canadian and New Zealand currencies likely to see further declines as we move into year end.
A point that will be expanded in this week's emerging market weekly, is my concern that further market nervousness will develop into broad weakness in the emerging market currencies. The key break-out in dollar Rand reflects pressure in emerging markets that could well accelerate over the coming weeks.
Published on Wed, Nov 28 2007, 06:40 GMT
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Dollar bears need to be selective ..
Wed, Nov 21 2007, 06:54 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The main themes of recent releases continue to unfold with yen and swiss franc strength dominating the currency markets and the prospect of the end of the 'carry trade' being seriously considered. The commodity currencies remain weak and whilst the market continues to talk of a weak US dollar, this is no longer the case broadly speaking.
Indeed the Dollar Index has had a reasonable rebound from my 75.00 target and this would have been much greater for the weight of the euro in its composition. Whilst the trend in euro dollar remains to the upside, selectivity remains key to any bearish dollar strategy. This is particulary imporant with euro dollar trading more like a cross currency.
Euro sterling held above the 0.7020 trigger from last week and whilst we have seen good gains, the trend momentum is starting to ease. Despite favouring another squeeze upwards for 0.7180/0.7200, the risk reward is starting to drop.
With stock markets continuing to follow my anticipated bearish theme, the yen and swiss franc should remain under-pinned.
Published on Wed, Nov 21 2007, 06:54 GMT
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Yen and Swiss to weigh on the market...
Wed, Nov 14 2007, 10:53 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
As expected, the yen and swiss franc have strengthened against the US dollar and the capacity for further gain remains as we move into the new year. Dollar yen targets stay at 108.00 (clearly implying a break of the major support at 109.00) and then 102.00 into year end. Dollar swiss targets are at 1.08 where talk of parity will commence.
I also expect the yen and swiss currencies to remain broadly strong with notable moves against the commodity currencies. The prospect of the end of the 'carry trade' has to be seriously considered from this point and the implications it would have on emerging market currencies. Whilst, in the past, the death of the carry trade had been greatly exagerated, the missing piece in the jigsaw was the possibility of a correction in the Asian stock markets. This prospect remains very real with the Hang Seng recently completing a major head and shoulders top and conforrming to my broader based bearish view of global stock markets. The net effect of this has seen profit taking on short dollar positions and whilst, I see further room for euro dollar to trade towards 1.47 and cable back up towards 2.12, these views are somewhat secondary compared to my preferred trades of broadly buying the yen and swiss franc.(note the euro yen and euro swiss charts enclosed)
Euro sterling breached key resistance at 0.7020 and this put the focus on a short term trend with targets at 0.7200. Whilst the broad view of this currency pair is range-bound, this would also still be the case if we were to hit this current objective. Clearly a close back through 0.7020 would be the main reversal signal.
One very consistent technical set-up has been in sterling yen where the major head and shoulders reversal continues to pan out. Given that we are in the final stages of this major topping pattern, the yen should remain under-pinned with targets at 220.00 into year end and on towards 218.00 in Q1 2008.
Published on Wed, Nov 14 2007, 10:53 GMT
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Yen and Swiss to weigh on the dollar..
Wed, Nov 7 2007, 08:11 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The broad weakness in the US dollar continued last week and, as expected, sterling dollar broke the 2.0651 key resistance and accelerated towards my 2.10 target. Whilst a consolidation may be in order, the trend is by no means over and should extend towards 2.12 into year end and 2.20 into Q1 2008.
The main currencies to watch this week are the Swiss franc and Japanese yen, both against the dollar. My target for dollar swiss is at 1.08 for Q1 2008 and this week should see some progress towards the 1.1300 level. Whilst the yen has traded in a range against the dollar, the potential for a break-out this week and move downwards to 112.00 have increased considerably. The equity markets continue to remain vulnerable and volatile swings in the Asian region may encourage some position squaring. The trigger to watch is at 113.68 as any breach could accelerate the dollar decline.
Published on Wed, Nov 7 2007, 08:11 GMT
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Cable on course for 2.10...
Wed, Oct 31 2007, 12:15 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The markets have been increasingly volatile over the past few week. The reasons for this are simple, whenever a good trend develops a number of participants will automatically fade the move if it is deemed to be too much of a 'one way bet', regardless of how justfied this may be. Although my preferred bias is for a weaker US dollar, last week's sharp retracement could not be ignored as normally a move of this sort would indicate at least a temporary top. However, the preceeding price action has set the trend for further US dollar weakness with sterling in the driving seat. Key resistance up at 2.0651 remains under threat and seems only a matter of time before this is broken with targets at 2.10 into year end.
As for the commodity currencies, the minor reversal patterns that indicated a retracement have been negated and the trend direction has been put back on the upward path. The Australian dollar, helped by gold, should hit parity into year end and although the New Zealand dollar is lagging, further upside potential exists towards 0.8100 into Q1 2008.
With oil being drawn towards the $100 target, further strength in the Canadian dollar and Norwegian krone should be anticipated, although the former is trading close to the key 1974 low at 0.9577
Published on Wed, Oct 31 2007, 12:15 GMT
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Yen gains to accelerate...
Tue, Oct 23 2007, 11:17 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
As suspected last week, the carry trades were close to a turning point and given the cascading falls in equities from Asia to the US (as per my long term bearish view of equities), there is reason to suspect further acceleration in yen gains. Against the US dollar my targets are at 108.00 and against sterling, 220.00 is the objective into December. Euro yen should remain under pressure with the upward trend negated in euro dollar.
The commodity currencies, which were mixed, are now broadly weak. The Australian and New Zealand dollars remain a sell with the petro-fuelled Canadian and Norwegian currencies reversing key trends that have worked so well over the past weeks.
Where does this leave cable? with so many key trends reversing, this one could well be the next to go. A break of 2.0247 would confirm that the upward trend is over. However, this would also mean euro sterling is on course for 0.6900.
Published on Tue, Oct 23 2007, 11:17 GMT
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FX Technical Strategy
Fri, Oct 19 2007, 11:10 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview The markets could be very volatile this week. We have seen a continued rise in commodities and the usual suspects, gold and oil have been powering ahead. However, the carry trades are showing reversal signals, and whilst they are tentative, these markets are known for their propensity to swing aggressively.
The first commodity currency to turn has been the New Zealand dollar with the Australian dollar moving in sympathy. Whilst the rise in commodities and equities have maintained the the yen as a funding currency, at some point (and we may be close) the markets will begin to view the commodity price rises as a detrimental factor to equities and hence cause a reversal of the carry trades.
Where does this leave the majors? The trend in the euro US dollar remains bullish, but a stalling of price will naturally tempt traders to take profits. A break of 1.4250 would draw the market through the high at 1.4280 and is the favoured view. Any break of 1.4015 would signal the end of the trend. The dollar yen could be set for 115.53 this week with swiss yen and euro yen set for 97.60 and 163.00 respectively.
Published on Fri, Oct 19 2007, 11:10 GMT
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Wheels of Dollar rebound oiled.. for now
Thu, Oct 11 2007, 08:45 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
In last week's document I discussed the potential for a broadening of the recovery in the US dollar based upon the weakening of the currencies which have been leading the dollar's decline. This theme continues to develop with modest reversal indicators emerging in the Australian and Canadian dollars. Whilst the short term signals point to a counter trend reaction in favour of the US currency, the sustainability of these trends will be contingent on the completion of potential topping formations in both oil and gold that imply a weakening of these key commodities. The extent of the retracement remains to be seen, but potential exists for a decline to $72.00 and $700 for oil and gold respectively with a commensurate decline in the Australian and Canadian currencies.
In the long term, however, I view these potential counter-trend retracements as opportunity to sell US dollars and buy gold and oil as these market's overbought/oversold status is unwound, rather than a strategic change in trend.
Published on Thu, Oct 11 2007, 08:45 GMT
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US Dollar to rebound in a longer term bear trend
Fri, Oct 5 2007, 07:13 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The bearish US dollar trade has been working well, but there comes a point where a correction is inevitable. Having rolled stop positions in the key trades, a period of consolidation is required before further US dollar weakness resumes. Whilst I remain broadly bearish for the US dollar, the currencies that have been the main drivers of the trend, namely the Norwegian krone, Canadian dollar, Australian dollar, and key emerging market currencies such as the zloty and Czech koruna are easing in an important week for market sentiment. Targets are 75.00 in the US dollar index remain, but a bounce from here is likely before testing the downside once again.
Sterling has rebounded against the euro with the big picture confirming a range rather than trending dynamics. A move back towards 0.6800 should occur over the coming weeks, with key stops over 0.6980. Against the US dollar, my suspicions were for an attempt on 2.05, with key support at 2.0330, the next objective should be 2.0650 and then 2.10.
Published on Fri, Oct 5 2007, 07:13 GMT
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US Dollar trend remains bearish
Fri, Sep 28 2007, 08:20 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The market may be getting nervous about being short the US dollar, but the bigger picture scenarios remain bearish for the US currency. My targets at 75.00 remain for the Dollar Index into year end with major support at 78.39 under pressure.
As mentoned last week, the currencies of choice to sell the greenback against have been the Canadian dollar, Norwegian krone and Swiss franc together with the stronger Eastern European currencies such as the Czech koruna and zloty.
Some major levels have already been achieved, namely parity in US dollar Canadian dollar, and 5.50 and 6.50 against the Norwegian krone and Swedish krona respectively, so some profit taking is understandable. However, this is likely to represent a chance to re-sell the US dollar and sterling at better levels, and for new participants to join the trend.
With commodities pushing higher, and my bias for $800 in gold, the Australian dollar has pushed sterling through a major support at 2.31, opening the way for a test of 2.27.
With Sterling US dollar locked in a range, the trend players continue to sit on the sidelines until the situation becomes clearer. Some resolution should be expected in the next few weeks, but my suspicions are for a break upwards towards 2.05.
Published on Fri, Sep 28 2007, 08:20 GMT
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US dollar Index targets 75.00
Thu, Sep 20 2007, 10:34 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
Despite the general weakness in the US dollar, it stilll remains key to be selective in the currencies which are bought against it. The currencies of choice have been the Canadian dollar, Norwegian krone, Swiss franc and various Eastern European currencies such as the Polish zloty and Czech and Slovak koruna.
The main bug bear has come in the form of sterling, which is also a sell against the above curencies and has been threatening to break-out in both bullish and bearish directions against the US dollar. Whilst there is a potential major head and shoulders reversal evident in the daily bar chart, more confirmation is needed before making a big picture call. It is likely that long term players will stand aisde until either 2.0330 or 1.9890 is breached.
Clearly, equities have posted strong initial gains and this has put further pressure on the Japanese yen. However, this does not change the big picture negative scenario for equities and once the initial euphoria has subsided, a bullish yen strategy can be re-established. Precious metal price rises, gold and platinum in particular, reflect investor caution.
Published on Thu, Sep 20 2007, 10:34 GMT
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Volatility drops, opportunity knocks..
Thu, Sep 6 2007, 11:45 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
After the recent turmoil, a week of relative stability in the currency markets will be viewed as a welcome respite. However, as volatility drops back towards more sustainable levels, the prospect of a new trend grows. Stock market moves continue to dominate sentiment and despite the recent strength in US equities, bond markets remain underpinned, highlighting the view that investors and traders alike remain cautious.
This week’s document focuses on the major currencies and reaffirms the key levels to watch that indicate the formation of a new trend. My view has been that, after a rebound and consolidation in equities, a bear trend would develop and the net result would be broad buying of yen, selling of euros against the US dollar and selling of sterling against the US dollar. The main charts look at the trigger levels for this and also where I would have to accept a change in view.
Outside the majors, the Czech currency has been appreciating strongly against its Slovakian counterpart, which in turn has been weakening against the US dollar. A major trend change in the US dollar Slovakian koruna could be developing. Included also is a chart of US dollar Romanian leu which is in the throws of a potential inverse head and shoulders pattern. The implications of this are for further US dollar strength through the key 2.45 level. This could well be a prelude to further upside for the US currency against emerging Eastern European currencies in general so will be monitored closely in the coming weeks.
Published on Thu, Sep 6 2007, 11:45 GMT
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Has Yen strength ruined the fun(ding)?
Fri, Aug 31 2007, 09:53 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
Was the unwinding of the carry trades a just temporary scenario caused by short term panic in the financial system and ultimately a chance for sidelined investors to join the fray? or is this a whole new trend that is likely to drive the direction of the markets into next year? From a technical perspective, the latter scenario seems more plausible at this stage and analysis of theYen crosses shows major patterns developing which imply a new bout of yen strength could be close by.
Key resistance in Sterling Yen is at 235. This should hold for a move back towards 225 and 220 as part of a possible head and shoulders reversal. Euro Yen sees a number of resistance points meet at 159.50 and potential exists for a large reversal pattern with targets at 155 and 150 over the coming months.
Sterling US Dollar, it could be argued, has been caught in the cross fire, but trading above 2.00 should be a short lived scenario and targets at 1.96 and below remain. Similarly, the New Zealand Dollar and Australian Dollars have rebounded into sell zones which question the commodity market trends and imply a new direction for the remainder of 2007.
Naturally the equity markets will play a major part in driving sentiment across the financial system and the strong bounce in US stocks will underpin the views of those who see this a revaluation of market prices to more sustainable levels. However, investor sentiment remains nervous and its should be noted that despite the current stability, the recent equity rallies can still be placed in the context of bigger picture technical reversals. US Bond futures remain strong and confidence in the equity markets could evaporate very quickly, upsetting the carry trades once again. Indeed, whilst some emerging market currencies have managed to trade back to their pre-crunch levels, others are still vulnerable to further declines. The Chinese stock market and currency remain oblivious to the turmoil and is seen by some as a reason to view the retracements as a simple buying opportunity. It will be interesting to see how global equities react to a correction in the Shenzen, but ultimately a decline there is not contingent on a bear phase in US and European Equities.
Published on Fri, Aug 31 2007, 09:53 GMT
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Canadian dollar back on lows at 1.10
Fri, May 4 2007, 14:35 GMT
by Stuart Frost
Market overview
US dollar/Canada has come back down to 1.10 very quickly, after what has been a massive trend in the Canada, most recently establishing a range of 1.19 resistance on 1.10 support. Typically after an extensive trend all reversal patterns are invariably about two way volatility and you can argue this is what we are now in represented by the 1.10 leg to 1.19 and back down to 1.10. There is no doubt, there is a considerable amount of support down here between 1.09/1.10 and we should test these level in the next few weeks or days for that mater and probably hold initially. The question you have to ask is fairly simple, do we see 1.20 next or 1.00 and what helps and what does not. I suspect that in the 1.00 argument we have interest rate differentials that on the two year are currently 50 basis points in favour of the US, but have been for some years, but likely to narrow towards zero and go Canada positive. I do not think yield will help either currency, although currently it is about holding US bonds against Canada as a trend trade. Canada is a commodity currency and base/precious metals are still very positive and defensive on pullbacks. The Canadian dollar is clearly a global growth currency, so even if the US is slowing and the rest of the world growing it is still good for Canada. Oil above $50 is a major plus and keeps Canada in the petro currency status.
On the US positive side you have had a massive devaluation of the US currency relative to Canada and one that has seen a 100% retracement of a 10 year move in this currency and the technicals do support a range down here, much as we have seen before, what worries me is that the US dollar is so universally weak against just about everything that the market is just looking for reasons to sell more US dollars and continue that theme. Also the rally of last year in the US dollar against the Canadian dollar came from a multi year exhausted down trend and much of it was about covering long Canada position that may have been 2 to 3 years old. This time there is not too much to go for and my concern is that a decline down to 1.00 is too hard to resist in 2007. On the upside 1.1300 is my key resistance level and a break back over here would negate this US dollar bearish view, but only for 1.2000, I can’t see much beyond that at this stage, unless the global economy collapses taking commodities and emerging markets with it. So if you see a break of 1.0900 I think 1.00 comes into play which would be the preferred view forward.
Let’s not forget something that the market has not generally picked up on and that is in the early to mid 1970’s US dollars Canada traded below and around 1.00 for many years. The first major support point here is at 1.0400, the high of that range in the 70’s. I would also make this point about the Canadian dollar and its recent strength. Many people in the market see sterling US dollar at 2.00 as representative of a strong currency and indeed sterling is, but the Canadian dollar is considerably stronger over a 10 year period with Sterling/Canada way off its highs in the late 1990’s at 2.70 and currently down at 2.20. If you look at a correlation chart of US dollar/Canada vs US dollar Brazil, you can see why the Canada is a play on emerging market induced global growth, with the high in US dollar Brazil coinciding with the high in US dollar Canada in mid 2002 . The trouble is that apart from good support down at 2.00 in US dollar Brazil I can’t see a turn in this market at the moment and that keeps global growth the No 1 driver of currencies in 2007 along with carry.
Published on Fri, May 4 2007, 14:35 GMT
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The range remains the same, but scandies stay volatile
Mon, Feb 26 2007, 10:12 GMT
by Stuart Frost
Market overview
Ranges remain a dominant theme, but there are trends and volatility out there and one should look no further than the scandinavian currencies, particularly the Icelandic krone, Swedish krone and Norwegian krone for some very interesting opportunities. The Norwegian and Swedish krone have presented some clear cut opportunities lately, with US dollar/Swedish krone trading back up against a major resistance line at 7.11 on rising lows looking to break back into the ranges of 2006 between 7.11 and 7.40 levels. It could be that we will see better levels to buy US dollars closer to 7.00, but I think the move back into last years ranges is logical and the market seems very reluctant to take US dollar/Swedish krone decisively below 7.00, most recently failing to take out lows in late 2004 at 6.57. US dollar/Norwegian krone has a clear trend of excessive two way volatility, that develops into medium term swing trends. This is another market that is well supported at 6.00, with an upside range resistance level at 6.80. Cyclically, we are back down at these lower levels and whilst I cannot discount another major test of 6.00, I think US dollar/Norwegian krone is close to a buy down here as it relates to the next 12 months. Where the market does look interesting is if you use the yield advantage by playing the Swedish or Norwegian currencies against the Icelandic krone. There you have some real trend movement against support and resistance levels with Swedish krone/Icelandic krone looking at a decline back towards 9.15 for 9.00. This market is well capped at 10.50 as you can see from the chart on page 4 of this document.
As for the major G7 currencies sterling/US dollar continues to hold ranges around 1.9450 support, but I am still in the camp that expects to see a decline back towards levels at 1.9200, but clearly it is a very choppy trade at the moment. Interestingly over the past 4 months sterling/US dollar has never closed above 1.9670 on a month end, so I think this month will be interesting as it relates to that fact. Clearly, a close over here on February 28 would force me to rethink short term sterling/US dollar strategy. US dollar/yen remains bullish for a move back towards levels at 125.50, excepting the fact that it will stay very choppy. I believe that the strength in Japanese equity markets, particularlay the TOPIX, which targets 2000 reflects a belief that the yen will stay weak and in a very competitive position. Euro/Sterling has taken back all of the early year down leg, back to 0.6760 and we are probably looking at a push back into 0.6760/0.6660 ranges with an outside chance we see 0.6800, which would be a strong sell zone.
Published on Mon, Feb 26 2007, 10:12 GMT
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Euro/US dollar and euro/sterling back in the spotlight
Mon, Jan 15 2007, 10:49 GMT
by Lloyds TSB Financial Markets Economic Research Team
Due to technical reasons, the report summaries will be unavailable for a short time. They will be restored as soon as possible. The reports themselves are still complete and can be downloaded in PDF format. We apologize for any inconvenience.
Published on Mon, Jan 15 2007, 10:49 GMT
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Markets look set to repeat the patterns of 2006
Tue, Jan 9 2007, 16:51 GMT
by Lloyds TSB Financial Markets Economic Research Team
Due to technical reasons, the report summaries will be unavailable for a short time. They will be restored as soon as possible. The reports themselves are still complete and can be downloaded in PDF format. We apologize for any inconvenience.
Published on Tue, Jan 9 2007, 16:51 GMT
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There is only one game in town
Mon, Dec 4 2006, 16:55 GMT
by Lloyds TSB Financial Markets Economic Research Team
I will be off for the next two weeks, so this will be the last publication for that period of time, but I would remain broadly bearish US dollars but still more interested in a short position through the Scandinavian currencies. I am not sure what can stop sterling/US dollar taking a run at 2.00, but one thing I am fairly sure of, it will pay not to get too greedy relative to the upside and sterling will see a whip sawed large down day at some point when it gets over extended, that is the way it has always been in sterling/US dollar. Euro/US dollar hit targets at 1.3100 with relative ease and 1.3300 is still the overall objective and potential over shoot to 1.3500. Clearly, US dollar/Swiss has hit 1.20 targets with relative ease but the market has backed off this level and appears extremely wary of this key psychological point, but overall risk is for 1.1800 and then 1.1300. US dollar/swedish krone is in trend mode and those targets remain at 6.60, a psychological point and a massive support line dating back 20 years. As for US dollar/ yen, its problem is euro/yen and the carry trade, but I can see US dollar/yen easing back towards 113/114 levels, but do not regard it as a significant opportunity, relative to other markets and the big picture.
Published on Mon, Dec 4 2006, 16:55 GMT
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Better opportunity outside the core currencies
Thu, Nov 23 2006, 22:04 GMT
by Stuart Frost, Rabia Bhopal, Nichola James, Trevor Williams, Kenneth Broux, Jeavon Lolay
As we approach year end, it has been very much a trend orientated trading period in emerging market currencies, set against a relatively subdued year for the G7 markets, with the exception of the Japanese yen. These themes look unlikely to change in early 2007, with the stand off in euro/US dollar between 1.25 and 1.29 set to persist. I still expect a break to the upside in euro/ US dollar, but I am under little illusion that it will represent anything of real meaning in terms of a major trend. Sterling/US dollar continues to struggle to hold 1.9100 and remains very contrarian in the way it trades, with lower support at 1.8700, time against price. It is why I tend to look for trades outside the core G7 block or often cross a G7 currency against a non-core currency, such as the one below which is Canadian dollars vs the Swedish krone. This is essentially the same trade as selling Swiss vs Swedish krone I recommended two week ago, but as far as I am concerned the game of trading currencies is about finding overvalued currencies and matching them against undervalued currencies. Everyone tends to focus on the most liquid currencies, but they do not always represent the most effective opportunities.
Published on Thu, Nov 23 2006, 22:04 GMT
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Emerging market opportunities impact on euro/US dollar
Mon, Oct 23 2006, 07:24 GMT
by Stuart Frost, Rabia Bhopal, Nichola James, Trevor Williams, Kenneth Broux, Jeavon Lolay
Euro/US dollar has this week given us a brief glimpse of "hope" that a trend may be round the corner, with 1.2200 the target, but we have been here before with 1.2500 the key support level set against resistance at 1.3000. I have a sense that there are still many euro bulls out there and clearly that remains the overriding long term trend. However, it is interesting that for a currency with the level of support and rhetoric the euro has enjoyed over the past 24 months we are no higher than two years ago and certainly some way off historical highs of over 1.4000 in 1995. Clearly, that rhetoric has taken the form of central bank diversification away from the US currency and into the euro. It begs the question, why is the euro not substantially higher. Naturally, currencies are driven by supply and demand and a core part of that is speculation. Perhaps the increased risk appetite to buy and sell so called emerging market currencies has taken core speculative volume away from currency pairings such as euro/US dollar, especially when you have better opportunities in, say, buying US dollar against the South African rand or buying US dollars against the Hungarian Florint. That core speculative volume may have countered central bank interest in the past. But as it has been deployed elsewhere, that is not a factor yet. That alone does not explain the ranges we are seeing in euro/US dollar, but it must be an important consideration, as long term speculative money shifts into anything from US dollar/ South African rand to the price of lead. That "catch 22" situation probably leaves central banks with a greater capacity to do what they have to do and makes them the major controlling factor in euro/US dollar and, as we know central banks do not like excessive trends or volatility. That also explains why FX options vols. are historically low and perhaps will remain in so, until speculative money is attracted back into the majors. Perhaps we are close to that possibility.
Published on Mon, Oct 23 2006, 07:24 GMT
Archive
- Green shoots' roots in commodities
Published On Wed, May 13 2009, 07:17 GMT - Top and tail outlook for majors
Published On Wed, Apr 29 2009, 06:13 GMT - Base case for sterling
Published On Thu, Apr 23 2009, 06:07 GMT - Risk appetite is reduced
Published On Wed, Apr 8 2009, 06:39 GMT - Dollar weakness is a long term story
Published On Wed, Mar 25 2009, 12:30 GMT
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