Currencies: JPY and CHF underperformed due to the rising positive sentiment in markets. The USD was mixed, losing ground to both the NZD and EUR.


EUR/USD. Uncertainty ahead of non-farms

EUR/USD (1.2838) is up slightly overnight and consolidating the sharp rally Wednesday. There is caution ahead of the non-farm payrolls report.

Technicals:

  • Trend: Daily higher; Weekly higher.

  • Overbought/Oversold (stochastics): Daily oversold; Weekly neutral.

  • Support / Resistance Levels: Support for EUR/USD lies at 1.2588 (Aug24 low), 1.2152 (Jun 29 low), 1.1877 (Jun7 low), 1.1827 (Mar’06 low), and 1.1640 (Nov’05 low). Resistance lies at 1.2856 (Sep1 high), 1.3334 (Aug 6 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 risk reversal (3m, 25delta) rose overnight with the rise in spot. The reversal is in the middle of its six-month range, and it appears to be trading an uptrending channel, providing some support for the move higher in spot.

  • Implied Vol (3m) fell overnight, and it is falling into the bottom-third of its six-month range.

Cross-asset valuation: The only significant correlation that EUR/USD has exhibited during the past 60 days is with the SPX (positive).


GBP/USD. Sitting below 1.55

Cable (1.5408) rose slightly overnight, with traders unwilling to make bets ahead of non-farms.

Technicals:

  • Trend: Daily lower; Weekly higher.

  • Overbought/Oversold (stochastics): Daily oversold; Weekly overbought.

  • Support/Resistance Levels: Resistance lies at 1.5999 (Aug6 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 1.5327 (Aug31 low), 1.50 (psychological), 1.4949 (Jun12 low), 1.4239 (May19 low) and 1.3503 (Jan’09 low).

Positioning:

  • The risk reversal (3m, 25delta) ticked higher overnight with the move in spot. The recent retreat from the upper end of its six-month range is consistent with recent decline in GBP/USD.

  • Implied Vol (3mo) fell overnight, and it is consolidating in the lower third of its six-month range

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


USD/CHF. Consolidating

USD/CHF (1.0147) is up slightly overnight on positive general market sentiment.

Technicals:

  • Trend: daily lower; weekly lower.

  • Overbought/Oversold (stochastics): Daily oversold; Weekly oversold.

  • Support/Resistance levels: Resistance lies at 1.0641 (Jul27 high), 1.0676 (Jul12 high) and 1.1742 (Apr’09 high), while support lies at 1.0065 (Sep1 low) and 0.9918 (Dec low).

Positioning:

  • The risk reversal (3m, 25delta) bounced overnight with the rise in spot. The skew is extreme, suggesting potential for a rally in spot.

  • Implied Vol (3mo) slipped overnight from a high since Jun. Vol remains in the middle of its six-month range.

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. Ranging from 1.00 to 1.10

USD/CAD (1.0550) is up overnight and appears to have taken up residence in a broad 1.00 to 1.10 range.

Technicals:

  • Trend: Daily lower; weekly lower.

  • Overbought/Oversold (stochastics): Daily overbought; weekly neutral.

  • Support/Resistance Levels: Resistance lies at 1.0673 (Aug31 high), 1.0680 (Jun high), 1.0853 (May25 high) and 1.1725 (Jul’09 high). Support lies at 1.0108 (Aug5 low), 0.9931 (Apr21 low), 0.9825 (May’08 low), 0.9712 (Feb’08 low), 0.9058 (Nov’07 low).

Positioning:

  • The risk reversal (3m, 25delta) rose overnight along with spot. It looks as if it might be bottoming in the bottom half of the six-month range, which would be consistent with a bottoming in spot.

  • Implied Vol (3m) rose overnight and is continuing the uptrend in place throughout Aug.

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. Sitting on 84

USD/JPY (84.46) is down overnight and consolidating just above the low of August.

Technicals:

  • Trend: Daily higher; Weekly lower.

  • Overbought/Oversold (stochastics): Daily oversold; Weekly oversold.

  • Support/Resistance Levels: Support lies at 83.60 (Aug24 low) and 79.75 (Apr 1995 low). Resistance lies at 88.12 (Jul28), 89.16 (Jul12 high), 92.89 (Jun4 high) and 94.99 (May4,5 high).

Positioning:

  • The risk reversal (3m, 25delta) ticked lower overnight. The skew is still in favor of USD/JPY downside, but is consolidating in neutral territory relative to its range the past six months, thus providing little guidance as to the direction of spot.

  • Implied vol (3m): fell overnight but is trending higher from deep in the lower half of its 6-month range.

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


AUD/USD. Consolidating Wednesday’s rally

AUD/USD (0.9100) is down modestly overnight, consolidating Wednesday’s rally. Something of a wedge formation forming as spot has traded higher lows since May but lower highs since April.

Technicals:

  • Trend: Daily higher; Weekly higher.

  • Overbought/Oversold (stochastics): Daily neutral; Weekly neutral.

  • Support/Resistance: Technical support lies at 0.8771 (Aug25 low), 0.8634 (Jul19 low), 0.8316 (Jul1 low), 0.8067 (May25 low) and 0.7704 (Jul’09 low). Resistance for AUD/USD exists at 0.9117 (Sep 1&2 high), 0.9222 (Aug6 high), 0.9389 (2010 high), 0.9406 (2009 high), and 0.9850 (2008 high).

Positioning:

  • The risk reversal (3m, 25delta) rose overnight despite the correction in spot. The reversal lies in the middle of the six-month range, providing little information as to future price action.

  • Implied Vol (3m) rose overnight, and it continues to consolidate in the lower 1/3 of its six-month range.

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


NZD/USD. Stabilizing

NZD/USD (0.7146) is up overnight on generally positive market sentiment. The price action has caused spot to threaten the top end of a mostly 0.70-0.72 range traded since mid-Aug.

Technicals:

  • Trend: Daily higher; Weekly lower.

  • Overbought/Oversold (stochastics): Daily oversold; Weekly overbought.

  • Support/Resistance: Resistance lies at 0.7397 (Jul27 high), 0.7442 (Jan14 high), 0.75247 (Nov high), and 0.7635 (Oct21 high). Support lies at 0.6948 (Aug 25 low), 0.6795 (Jul1 low) and 0.6561 (May25 low).

Positioning:

  • The risk reversal (3m, 25delta) rose overnight, and it is in the top 1/3 of its six-month trading range.

  • Implied Vol (3m) fell overnight, and it continues to consolidate in the low end of its six-month range.

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