GBP was boosted by higher-than-expected inflation

Currencies: AUD underperformed, while CAD, GBP and JPY outperformed. AUD was weighed (and JPY boosted) by China’s tight lending stance. GBP was boosted by higher-than-expected inflation. EUR was weighed by the downgrade of Portuguese debt and the weak ZEW reports.

EUR/USD. Failing at downtrend resistance

EUR/USD (1.2584) is down overnight after the downgrade of Portugal and worse-than-expected ZEW reports. Spot continues to fail at the downtrend line off the December and April highs.

Technicals:

Trend: Daily higher; Weekly higher.
Overbought/Oversold (stochastics): Daily overbought; Weekly oversold.
Support / Resistance Levels: Support for EUR/USD lies at 1.25 (psychological), 1.2152 (Jun 29 low), 1.1877 (Jun7 low), 1.1827 (Mar’06 low), and 1.1640 (Nov’05 low). Resistance lies at 1.2702 (downtrend from Dec’09 high), 1.2722 (Jul9 high), 1.3094 (May10 high), 1.3692 (Apr12 high), 1.3818 (Mar17 high), 1.4026 (Feb3 high), 1.4194 (Jan25 high), 1.4579 (Jan13 high) and 1.4626 (Nov low).

Positioning:

The CFTC, EUR, non-commercial, net position (-38K) moderated, in keeping with the price action through last Tuesday.
The risk reversal (3m, 25delta) fell with spot’s overnight decline. The reversal is still heavily skewed for EUR downside, but it lies in the middle of its six month range – suggesting two way price action.
Implied Vol (3m) ticked higher overnight on the decline in spot.

Cross-asset valuation: The significant correlations that EUR/USD has during the past 60 days are the 10yr yield spread (positive), the US10yr yield (positive) and the SPX (positive).

GBP/USD. Uptrend stalling, but holding 1.50

Cable (1.5088) is up overnight on a sharp rally in BP shares, and while spot appears to have stalled and be in danger of beginning a new downtrend, it is managing to hold above 1.50.

Technicals:

Trend: Daily crossing lower; Weekly higher.
Overbought/Oversold (stochastics): Daily overbought; Weekly oversold.
Support/Resistance Levels: Resistance lies at 1.5241 (Jul8 high), 1.5524 (Apr15 high), 1.5816 (Feb17 high), 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 1.50 (psychological), 1.4949 (Jun12 low), 1.4239 (May19 low) and 1.3503 (Jan’09 low).

Positioning:

The CFTC, GBP, non-commercial, net-position deteriorated modestly to -39K, presaging the stall and potential decline in spot.
The risk reversal (3m, 25delta) ticked higher overnight, back towards the highs since Feb on the rally in spot. While it remains skewed for GBP losses, it is also in the upper end of its six-month range, which suggests an overbought condition.
Implied Vol (3mo) is up overnight and off the new low since Jan traded Friday.

Cross-asset valuation: The significant correlates over the past two months for GBP/USD have been the DXY (negative), EUR/USD (positive), and S&P500 (positive).

USD/CHF. New uptrend stalled

USD/CHF (1.0601) fell overnight, mostly during the European morning. Spot has stalled in the nascent rebound off the recent test of 1.05.

Technicals:

Trend: daily higher; weekly lower.
Overbought/Oversold (stochastics): Daily oversold; Weekly neutral.
Support/Resistance levels: Resistance lies at 1.1742 (Apr’09 high), while support lies at 1.0482 (Jul8 low) and 1.0435 (Apr1 low).

Positioning:

The CFTC non-commercial net position moderated to -7K, but it remains among the lowest readings since 2007 and suggestive of USD/CHF weakness.
The risk reversal (3m, 25delta) ticked higher overnight despite the fall in spot. However, it remains near its low since Oct’09. This market segment has abandoned its bullish USD/CHF call, but the skew is very close to a six-month low, suggesting potential for a rally in spot.
Implied Vol (3mo) is up slightly overnight but cannot seem to escape the vicinity of multi-year lows.

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

USD/CAD. Holding on to post-employment losses

USD/CAD (1.0320) is down overnight, holding near the lows that came after Friday’s strong Canadian labor report, this despite poor loan officer and sales outlook surveys yesterday.

Technicals:

Trend: Daily lower; weekly ;lower.
Overbought/Oversold (stochastics): Daily overbought; weekly neutral.
Support/Resistance Levels: Resistance lies at 1.0677 (Jul5,6 high), 1.0680 (Jun high), 1.0853 (May25 high) and 1.1725 (Jul’09 high). Support lies at 1.0296 (Jul9 low), 1.02 (psychological), 1.0139 (Jun21 low), 1.0110 (May13 low), 0.9931 (Apr21 low), 0.9825 (May’08 low), 0.9712 (Feb’08 low), 0.9058 (Nov’07 low).

Positioning:

The CFTC, non-commercial, net position fell to 11K and is threatening the uptrending channel it has traced out in recent months.
The risk reversal (3m, 25delta) ticked higher overnight despite the decline in spot.
Implied Vol (3m) is up slightly, and it lies near the middle of it’s range so far in 2010.

Cross-asset valuation: In terms of other assets correlating with USD/CAD, watch the SPX (negative), CRB (negative), crude oil (negative), and the 2yr spread (negative).

USD/JPY. Rebound stalled

USD/JPY (88.31) is down overnight and the rebound from a test of the Jul1 low last week appears stalled..

Technicals:

Trend: Daily higher; Weekly lower.
Overbought/Oversold (stochastics): Daily oversold; Weekly neutral.
Support/Resistance Levels: Support lies at 86.97 (Jul1 low) and 84.83 (Nov27 low). Resistance lies at 89.16 (Jul12 high), 92.89 (Jun4 high) and 94.99 (May4,5 high).

Positioning:

The CFTC, non-commercial net position rose to 40K, near the top of the 6-month range. This is about as bullish as speculators have been in the past several years.
The risk reversal (3m, 25delta) rose overnight despite the decline in spot. The skew is still in favor of USD/JPY downside, but lies in neutral territory relative to its range the past six months.
Implied vol (3m): fell overnight into the lower half of it’s 6-month range.

Cross-asset valuation: The correlations of USD/JPY with the US 10yr yield (positive), the US-JP 10yr (positive) spread, the S&P500 (positive), CRB (positive) and crude oil (positive) are significant.

AUD/USD. Slipping below retest Jun high

AUD/USD (0.8756) is down overnight, continuing to slip from the strong gains last week.

Technicals:

Trend: Daily higher; Weekly higher.
Overbought/Oversold (stochastics): Daily neutral; Weekly neutral.
Support/Resistance: Technical support lies at 0.8316 (Jul1 low), 0.8067 (May25 low) and 0.7704 (Jul’09 low). Resistance for AUD/USD exists at 0.8859 (Jun21 high), 0.9389 (2010 high), 0.9406 (2009 high), and 0.9850 (2008 high).

Positioning:

The CFTC, non-commercial net position fell to 7K as spot consolidated before the Tuesday measurement.
The risk reversal (3m, 25delta) is up overnight despite the slippage in spot.
Implied Vol (3m) is up slightly overnight, just below the middle of its range for 2010.

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

NZD/USD. Grinding higher for a retest of Jun high

NZD/USD (0.7120) is up overnight, grinding higher to a new high since Jun.

Technicals:

Trend: Daily higher; Weekly higher.
Overbought/Oversold (stochastics): Daily neutral; Weekly neutral.
Support/Resistance: Resistance lies at 0.7160 (Jun23 high), 0.7326 (Apr30 high), 0.7442 (Jan14 high), 0.75247 (Nov high), and 0.7635 (Oct21 high). Support lies at 0.6795 (Jul1 low) and 0.6561 (May25 low).

Positioning:

The CFTC non-commercial, net position rebounded to above 2K, but remains below the average reading for the past six months.
The risk reversal (3m, 25delta) rose overnight, and lies just above the middle of its six-month range.
Implied Vol (3m) rose slightly overnight but continues trending lower through the middle of the 2010 range.

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