Currencies: Markets unpriced some of the risk aversion from last week, as CAD out performed and NZD and AUD gained vs the USD, while JPY underperformed. GBP also underperformed on concerns about this year’s election resulting in stalemate.


EUR/USD. Catching hold above 1.35

EUR/USD (1.3669) is off overnight for the fourth consecutive day. However, the intra-day so far remains above that of Friday, providing a sign of stabilization

Data releases: The Sentix Investor Confidence survey for Feb unexpectedly fell from -3.7 to -8.2 (consensus -2.7), after reaching a high since Jun last month.

Technicals:

  • Trend: Weekly down; Daily up.
  • Overbought/Oversold (stochastics): Weekly oversold; daily oversold
  • Support / Resistance Levels: Support for EUR/USD lies at 1.3586 (Feb5 low), 1.3424 (May18 low), 1.3330 (Jan27’09 high). Resistance lies at 1.4026 (Feb3 high), 1.4194 (Jan25 high), 1.4579 (Jan13 high) and 1.4626 (Nov low).

Positioning:

  • The CFTC net non-commercial positioning appears particularly extreme for EUR. The short position has grown to -38.4K, near the record -43K established in Sep’08, weeks before EUR/USD bottomed around 1.25.
  • The risk reversal (3m, 25delta) has caught itself, albeit with a downward skew of -1.365, and is drifting higher, suggesting a stabilization in the currency.
  • Implied Vol (3m) has spiked towards the high since Nov on the decline in EUR/USD.

Cross-asset valuation: EUR/USD is re-establishing short-term correlations with other assets: Crude oil (positive), S&P (positive) and US 10yr yield (positive).


GBP/USD. Breaking below 1.57-1.70 range

Cable (1.5569) is down overnight and has now broken below the bottom of the 1.57-1.70 range in place since June.

Technicals:

  • Trend: Weekly lower; Daily lower
  • Overbought/Oversold (stochastics): Weekly neutral; daily oversold
  • Support/Resistance Levels: Resistance lies at 1.6284 (Jan22 high), 1.6458 (Jan19 high),1.6479 (61.8% retracement of Nov to Dec decline), 1.6722 (Dec 3 high), 1.6878 (Nov16 high) and 1.7043 (Aug high). Support lies at 1.5536 (Feb8 low) and 1.5373 (Jan’09 high).

Positioning:

  • The CFTC non-commercial net position neutral to low at -34.9K
  • The risk reversal (3m, 25delta), is grinding lower, suggesting the options market is pushing lower on GBP.
  • Implied Vol (3mo) is jumping higher from very low levels.

Cross-asset valuation: The only strongly significant correlates over the past two months for GBP/USD have been the DXY (negative) and EUR/USD (positive).


USD/JPY. Catching hold after losing 90

USD/JPY (89.32) is up overnight for the second consecutive day after breaking below 90 and trading a new low since Dec on Thursday.

Technicals:

  • Trend: Weekly higher; Daily higher
  • Overbought/Oversold (stochastics): Weekly neutral; Daily oversold.
  • Support/Resistance Levels: Support lies at 88.56 (Feb4 low), Resistance lies at 91.28 (Feb3 high), 91.88 (Jan21 high) and 93.77 (Jan8 high).

Positioning:

  • The CFTC, non-commercial net position: The moderation in the position to 17.2K is consistent with the recent increase in USD/CAD.
  • The risk reversal (3m, 25delta) is relatively low, suggesting limited USD/JPY downside.
  • Implied vol (3m): Has jumped from very low levels.

Cross-asset valuation: The correlations of USD/JPY with the S&P, US 10yr yield and the US-JP 10yr spread remain significant.


USD/CAD. Stalled after new high since Nov on Fri

USD/CAD (1.0693) is down overnight on risk seeking trades.

Data releases: Today, housing starts for Jan are expected to have risen 180K (prior 174.5K).

Technicals:

  • Trend: Weekly up; Daily lower
  • Overbought/Oversold (stochastics): Weekly neutral; daily overbought
  • Support/Resistance Levels: Resistance lies at 1.0781 (Feb5 high), 1.0870 (Nov2 high), 1.0959 (Oct high), 1.0993 (Sep high), and then 1.10 (psychological). Support lies at 1.0225 (Jan14 low), 1.0207 (Oct low), and 1.00 (psychological).

Positioning:

  • The CFTC, non-commercial, net position retreated from overbought territory, consistent with the rally in USD/CAD. It is now relatively neutral.
  • The risk reversal (3m, 25delta) jumped back to massively overbought.
  • Implied Vol (3m) has jumped but remains relatively neutral

Cross-asset valuation: In terms of other assets correlating with USD/CAD, watch the SPX (negative), DXY (positive), CRB (negative), and crude oil (negative).