Currencies: On the back of better global sentiment, carry trades outperformed. Trichet’s early trip home from a meeting in Sydney has markets hoping that European policymakers will avert a further deterioration in the crisis in Greece. NZD beat all the other currencies, while JPY lagged. GBP also lagged as January same store sales dropped sharply. AUD was buoyed by hawkish talk from the RBA Governors.

EUR/USD. Holding above 1.35

EUR/USD (1.3706) is up overnight after four consecutive days of losses. Trichet’s early trip home from Sydney has hopes up that a crisis in Greece will be averted.

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. Catching hold below 1.57-1.70 range

Cable (1.5587) is up overnight and appears to be stabilizing after having broken below the bottom of the 1.57-1.70 range in place since June.

Data releases: Same store retail sales fell 0.7% in Jan, the worst drop in data back to 1995. Part of the drop was due to poor weather, and part was due to the expiration of a temporary VAT cut.

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/CHF. Rally faltering

The rally to the highs since Aug is faltering, with USD/CHF (1.0695) down for the first time in 5 days.

Technicals

  • Trend: Weekly higher, daily higher
  • Overbought/Oversold (stochastics): Weekly neutral; daily overbought
  • Support/Resistance levels: Resistance lies at 1.0795 (Feb 5 high) and 1.1023 (Jun high), while support lies at 1.0643 (Jan29 high) and 1.05 (psychological).

Positioning:

  • The CFTC non-commercial net position declined to -2.1K and is consistent with the rise in USD/CHF.
  • The risk reversal (3m, 25delta), at +0.675, the skew is towards USD/CHF. The options market went bullish back in Oct and hasn’t abandoned that view since.
  • Implied Vol (3mo) remains quite low at 10.90%.

Cross-asset valuation: USD/CHF has correlated mostly strongly during the past 60 days with EUR/USD (negative), the USD index (positive), and gold (negative).


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

USD/CAD (1.0719) is down overnight on risk seeking trades.

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), at 1.295, has 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).


USD/JPY. Catching hold after losing 90

USD/JPY (89.61) is up overnight for the third consecutive day after breaking below 90 and trading a new low since Dec last 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 rise in the position to +8.4K is consistent with the recent decline in USD/JPY.
  • 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.


AUD/USD. Holding above 0.85

AUD/USD (0.8709) is up overnight and continues to stabilize above 0.85.

Technicals:

  • Trend: Weekly lower; Daily lower
  • Overbought/Oversold (stochastics): Weekly neutral; Daily oversold.
  • Support/Resistance: Technical support lies at 0.8579 (Feb5 low) and then 0.8500 (psychological). Resistance for AUD/USD exists at 0.9406 (Nov16 high) and then 0.9476 (Jul’08 low).

Positioning:

  • The CFTC, non-commercial net position; The moderation in the position to 33.5K is consistent with the recent declines in AUD/USD.
  • The risk reversal (3m, 25delta) is stabilizing in oversold territory after collapsing in previous sessions.
  • Implied Vol (3m): Jumping higher, but not overbought.

Cross-asset valuations: AUD/USD has correlated most strongly with gold (positive), equities (S&P500, positive), and commodities (CRB, positive).


NZD/USD. Holding after after breach of 0.70

NZD/USD (0.6905) is up overnight after trading on Friday to a new low since Sep.

Technicals:

  • Trend: Weekly lower; Daily lower
  • Overbought/Oversold (stochastics): Weekly neutral; Daily oversold
  • Support/Resistance: Resistance lies at 0.7442 (Jan14 high), 0.7500 (psychological) and 0.7635 (Oct21 high). Support lies at 0.6808 (Feb5 low), and 0.6594 (Jun high).

Positioning

  • The CFTC non-commercial, net position; The moderation in the position to 5.4K is consistent with the recent declines in NZD/USD.
  • The risk reversal (3m, 25delta) is relatively steady after falling back to oversold territory.
  • Implied Vol (3m): Jumping from very low levels.

Cross-asset valuations: The strongest correlates for NZD/USD during the past two months have been AUD/USD (positive), the USD index (negative), stocks (S&P500, positive) and commodities (CRB index, positive).