Tuesday, February 23, 2010

Dollar Loses Ground on Regained Risk Appetite

Briefing
The dollar was mixed in Asia Tuesday. Yen crosses led the early market action with a slight move higher and euro-yen was initially expected to break through Y125.00 again. That carried dollar-yen to an early peak of Y91.30, while euro-dollar also rode on euro-yen's gains to $1.3612. The gains tapered off around midmorning, and dollar-yen then gave up the Y91.00 mark for a Y90.94 low as euro-yen hit a morning peak of Y124.26.

Euro-dollar also dipped slightly for a $1.3588 low although rumors of demand from a 'semi official' then emerged, carrying euro-dollar back up through $1.3600 to a high at 1.3637. Euro-Swiss spiked higher in late Asian trade, with traders again pointing the finger at 'the usual suspect' (some suggest SNB bought at Chf1.4670/75), although no confirmation of central bank buying was found. The cross trades at 1.4665, having traded a 1.4620 to 1.4680. RBA Battellino speaks at 0700GMT and will provide an early focus, with Germany Ifo data at 0900GMT seen as the highlight data release for Tuesday.

Euro
Euro-dollar opened Asia around $1.3597 and initially challenged the $1.3600 before squeezing back to mark session lows at $1.3588. Talk of semi official buying, as well as talk of option related demand placed at $1.3570, prompted short term specs to lift the rate higher, with Asian sovereign buys taking the rate through $1.3600. Stops were triggered on the move, with rate able to push on to an eventual $1.3637 session high on cross yen demand, as well as talk of official buying seen in euro-Swiss which took the cross from Chf1.4620 to $1.4680.

Fresh demand emerged in early Europe with reported stops above $1.3655/60 targeted and triggered, with rate pushing on to $1.3664. Rate retains a firm tone, with corrective pullbacks so far remaining very shallow. Fresh offers seen toward $1.3680 with more stops above. A break here targets $1.3700/10 ($1.3707 76.4% $1.3789/1.3443). Germany Ifo due at 0900GMT.

RES 4: $1.4016 Channel top from 3 Dec
RES 3: $1.3838/53 High 9 Feb, Low 1 Feb
RES 2: $1.3760/89 21-day moving average, High 17 Feb
RES 1: $1.3655 Minor highs

CURRENT LEVEL: $1.3627

SUP 1: $1.3420/50 76.4% of April/Dec rally, Bollinger base, Low 18 Feb
SUP 2: $1.3404 61.8% retracement of the post-Oct 2008
SUP 3: $1.3360 2% Moving average envelope
SUP 4: $1.3344 Projected channel support 3 Dec


Yen
Dollar-yen opens in Europe at Y90.92 euro-yen Y123.94 The dollar-yen continues to test lower overnight as more light stops are taken out sub Y91.00. Traders had reported yesterday of potential buying interest in the dollar-yen at Y90.80 area. The market expects the Toushin interest that has been touted for the last week or so to materialise today as the first launches commence, this should add support to the cross-yen market and ultimately dollar-yen as most of this demand is done through the legs.

However one trader speculates that a good portion of this demand has already been executed in the recent sessions and that the impact on the fx market may not be as substantial as people have anticipated. The dollar-yen is back in the daily Ichimoku cloud and this has withdrawn a lot of the bullish sentiment for the pair. The 200dma is at Y92.20 and many traders expect this area to cap any rally in the near term.

RES 4: Y93.02 50% of Nov/Jan projection
RES 3: Y92.53 76.4% retracement of Jan/Feb decline
RES 2: Y92.16/20 High 19 Feb, 200-day moving average
RES 1: Y91.60 Top of the Ichimoku cloud

CURRENT LEVEL: Y91.09

SUP 1: Y90.70/75 Tenkan line & 55-day moving average
SUP 2: Y90.20/30 100-DMA, Kijun line & 21-day moving average
SUP 3: Y89.93 61.8% retracement of Feb advance
SUP 4: Y89.25 Base of the Ichimoku cloud


Cable
Cable extends recovery with fresh demand into early Europe taking the rate above its Asian high at $1.5540. Offers seen to $1.5550 with talk of stops placed on a break of $1.5560. A break here to open a move on toward $1.5600 ($1.5598 76.4% $1.5675/1.5350

RES 4: $1.6000 55-day moving average
RES 3: $1.5833/50 Low 30 Dec, Former bear-flag top, Low 1 Feb
RES 2: $1.5760 21-day moving average
RES 1: $1.5631 Former bear-flag base

CURRENT LEVEL: $1.5528

SUP 1: $1.5515 Minor support from 5-day moving average
SUP 2: $1.5350 50% retracement of $1.3659 to $1.7041, Low 19 Feb
SUP 3: $1.5310 Current base of the daily Bollinger band
SUP 4: $1.5275 61.8% of implied full bear-flag target

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