Improving risk sentiment sees a Yen sell-off, with chance of more to come

Unwinding of Yen cross positions was the main theme of the day as risk sentiment continued to improve in the higher equity markets following the recent sell-off. Another positive session today, could see a continuation of the same theme. Elsewhere, apart from the weaker Kiwi, it has been a range-bound session and that maybe the theme heading into the weekend given the comparative lack of data due today. UK GDP, German Consumer Confidence and US New Home Sales to be the highlights.

Due to travel commitments, today’s report is restricted to the majors. Full report on Monday Have a good weekend.

EUR/USD: 1.2646

The Euro had a reasonably quiet session after heading to the session high of  1.2676 following a surprise to the topside in the manufacturing PMI,s, with the EU number coming in at 50.7( exp 50.0) and Germany at 51.8 (exp 49.6). After drifting a little lower into NY trade, there has been little action until late in the day, when the dollar again came under pressure following news of another Ebola scare in the US, with the Euro finishing at around 1.2650, pretty much unchanged from yesterday.

There is little change in the technical outlook, and with little data out today it could well be another session trapped within 1.26/1.27.

Currently sitting on the Fibo level at 1.2645 (61.8% of 1.2501/1.2885), a move to the downside will find buyers at the session low at 1.2613, below which the Euro would head on to 1.2600.  Below here would find further bids at 1.2590 (76.5%) and at the minor low at the minor 7 Oct low at 1.2580. Once that gives way though there is little to stop the Euro heading back to 1.2500, but which, if seen today should be strong support.

On the topside, minor resistance should again arrive at around 1.2675/80 and then again at the 1.27 pivot. Beyond here would retest the session high at 1.2740 (200 HMA: 1.2732) but looks unlikely to be seen today

Look for another day confined to 1.26/1.27.

Economic data highlights will include:

German Consumer Confidence, New Home Sales.

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EUR/USD: 4 Hour

USD/JPY: 108.25

Some unwinding of the safe haven trade in the Yen crosses allowed US$/Jpy to move higher today, and as we expected earlier in the week, it has partially played a game of catch-up on the back to the firmer equities, which once again today have had a solid session (DJI, S+P +1.25%).

Having made it up to 108.35 the dollar is closing right on the Fibo level at 108.10 (61.8% of 110.08/105.18) and while the hourlies are overbought, the 4 hour charts still remain positive in their outlook, so a test of 108.75 (76.4%) should not be ruled out. Above here would again test the 109/110 level although I am a little doubtful that we are going to see it up here today.

The downside should see bids at 108.00, below which would head back towards 107.70 and possibly to 107.50 but looks more likely to have a session within the 107.85/108.35 range.

Playing it from the long side and buying dips remains the play for an eventual run back to 110+..

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USD/JPY: 4 Hour

GBP/USD: 1.6028

Cable is pretty much unchanged today although it did give 1.6000 a nudge, having traded down to 1.5994 after the disappointing UK Retail Sales. The lows come under further scrutiny later today, with the release of the provisional Q3GDP should it miss expectations (exp 3%yy, 0.7%mm), in which case it will head towards the 16 Oct low at 1.5936, and eventually, via 1.5900, back to the trend low at 1.5873.

On the topside, if the GDP is a solid reading, we could see a squeeze back to 1.6060 , maybe 1.6075 (minor) and possibly to the 100 HMA at 1.6100, above which, would take us back to the session high at 1.6130. With the 4 hour charts still pointing lower, this looks unlikely and selling rallies remains the preferred strategy.

Economic data highlights will include:

UK GDP.

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GBP/USD: 4 Hour

AUD/USD: 0.8757

Having successfully held above 0.8750 yesterday, the Aud made yet another attempt to squeeze above 0.8800, but again failed at 0.8805 and is now back at the bottom of the range.

With little data dues today, it could be another quiet session but it looks increasing ly that if/when 0.8750 gives way we could see a run to the downside. Below the spike low following the CPI, at 0.8745 would head towards last Friday’s lows around 0.8730 and then to 0.8700. I doubt that we are heading below here today, but if wrong, would hint at a run towards last week’s lows at 0.8685, 0.8675 and below there at 0.8651.

The topside would seem limited for now to 0.8780 although there is a chance that we could see a run back to 0.8800. Above there could head back to the recent highs at 0.8815, 0.8832 and 0.8860 although I can’t see it and would be surprised to see it back at 0.8800.

Economic data highlights will include:

China House Price Index.

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AUD/USD: 4 Hour

NZD/USD: 0.7824

The Kiwi has had a rough ride since the release of the CPI yesterday and currently sits above session lows of 0.7810.

While 0.7800 holds, we may see a choppy session with the Trade data, coming up shortly to provide the direction. The medium term view remains unchanged from recent days in that I think we are heading back for a test of the trend low at 0.7707  (29 Sept) and eventually a fair bit lower..

The topside looks capped now at 0.7870 although we could see a squeeze back to 0.7900. If so it would be a decent sell opportunity.

Economic data highlights will include:

NZ Trade Balance.

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NZD/USD: 4 Hour