Yen, US$ back in demand as safe haven assets return to favour. German CPI today

Aud, Kiwi under some pressure as Portuguese banking concerns come to the fore, unsettling risk assets.

Safe haven demand returned to the fore today as concerns grew over the Portuguese banking system. Risk aversion saw a move into the US$ and the Yen, while stocks took a hit, and other risk associated assets including the Aud$ also came under some pressure. Today is thin on the ground with regards to data so it looks likely to be a reasonably quiet end to the week.

EUR/USD: 1.3605

The Euro is lower today after some soft Italian data combined with concerns over the health of the Portuguese banking system which drove peripheral EU bond yields higher, pushing investors back towards the safe haven of the dollar.

Having looked relatively bid yesterday, the Euro was unable to overcome 1.3650 and eventually sank to a low of 1.3588, before recovering somewhat to sit at the recent 1.3600 pivot, with another session of similar trade looking likely today.

Having previously been suggesting that the Euro could head a bit higher, the short term indicators have now lost their positive momentum and it looks as though rallies may now be a sell opportunity for an eventual retest of the downside. Today’s focus will be on the German CPI,and if that is soft again, suggesting that the ECB may need to act once more to add liquidity in order to promote economic growth, then the Euro will want to take another look at its recent lows.

We are currently sitting back just above 1.3600 (daily kijun), which could again act as a magnate, but back below the session low would see bids at 1.3575 (4 July low;1.3573). Beyond there would head towards 1.3557 (76.4%) a break of which would head to the greater degree of Fibo support at 1.3518 (38.2% of 1.2754/1.3995) but which looks unlikely to be seen today. If wrong, a break would see good bids ahead of the post-ECB spike low at 1.3502. The base of the rising wedge now lies at around these levels as well, so if we see 1.3500 I think I would be squaring up short positions at the first attempt to break through it, as it should be strong support. If wrong on this, a break of the wedge base would hint at a further move south towards 1.3415 (200 WMA), 1.3370 (50% pivot % of 1.2754/1.3995) and then to 1.3300 (100 WMA) and 1.3294 (7 Nov ’13 low).

On the topside, the 200 HMA is at 1.3630 and this may prove difficult to break today. If it does head higher though, and can take out the minor Fibo resistance at 1.3652 (61.8% of 1.3700/1.3573) the Euro could then head on to 1.3670 (76.4%/ daily cloud base/200 DMA). Further out, it would find sellers at 1.3700, a break which would see a run up towards 1.3730(100 DMA), which should be solid resistance although a break of this level would head on towards 1.3803 (61.8%).

For the coming session, use 1.3575/1.3630 as a guide.

Economic data highlights will include:

German CPI

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EUR/USD: 4 Hour

USD/JPY: 101.30

The yen saw solid demand today as traders sought a safe haven from the concerns over the banking system in Portugal, triggering stops below the June, 101.23 low, in heading down to 101.06 before finding a base, allowing a minor bounce.

The short term charts, having become oversold, have now turned to point a bit higher, so I am not sure that the downside momentum will continue today, but over the next few days the dailies appear to be heading for another test of 101.00, below which would see a return to strong support at the 9 May low at 100.80.. If this were to give way, then look for a run towards 100.60 (50% pivot of 95.78/105.43), below which we could be in for a sharp run towards 100.00 and 99.47 (61.8%).

On the topside, the dollar needs to regain 101.45/50 in order to achieve some sort of stability, above which would head back towards the 200 HMA at around 101.70. Beyond here may be tricky today, with the 200 DMA (101.80) and 100 DMA (102.10) providing further hurdles.

Look for 101.00/101.50 to cover it today.

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USD/JPY: 4 Hour

AUD/USD: 0.9390

The Aud had a rocky session today, briefly spiking up to 0.9455, before heading sharply lower once again on the news of an increase in the unemployment rate to 6%, and then coming under further pressure following the miss in the Chinese Trade Balance. Further losses followed, as risk positions were cut on the news of the Portuguese banking concerns, with the Aud hitting a low of 0.9360, where it met the rising trend support, before a slow grind back up, to sit just below 0.9400 at the end of the NY session.

The short term charts are mixed, so I suspect that given the lack of any major data today, the Aud is likely to hang around current levels. The dailies, though, look as though it may be the downside that comes under pressure over the next few sessions and a break of at 0.9360 would suggest a decline towards support at 0.9320 (61.8% of 0.9220/0.9505/18 June low) and then possibly to 0.9300. If risk aversion in the EU picks up, then we could see the Aud come under further pressure, and below 0.9300 would see a run towards 0.9275 (76.4%). As we said before, if the Aud breaks under 0.9250, then the downside could really accelerate, but at this stage is considered unlikely.

On the topside, back above 0.9400 could see another run up to 0.9425, and beyond to today’s session high at 0.9455 and  to the 10 April high at 0.9460. Beyond this would then head on towards  0.9495(76.4% of 0.9757/0.8660) and last weeks top at 0.9505,  a break of which, there would be little to stop the Aud heading towards the 6 June high at 0.9543. Above here, the long term objective from the major head/shoulder reversal is now at 0.9665.

I suspect further choppy trade around 0.9400 is the most likely outcome today, with the housing data the only source of inspiration, so don’t look for too much in it.

Economic data highlights will include:

Home Loans, Investment Lending for Homes

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AUD/USD: 4 Hour