Monday, February 1, 2010

Market Remains Cautious on Risk
Euro-yen sank to fresh 9-month low of Y124.50 in early Asian trade, the move down led by sales of Aussie-yen as the market supposedly reacted to weekend comments from FSA Head Lord Turner signalling a crackdown on carry trades. The move dragged dollar-yen through rumored stops around Y89.85 to a low of Y89.76. Although dollar-yen rebounded smartly soon after, euro-yen remained depressed near Y124.80/90 through much of the morning, before rallying to Y125.43. Dollar-yen's recovery saw it hit a high of Y90.39, as specs sought shelter in the dollar and as the euro was shunned against a backdrop of rising risk-aversion and persistent worries about euro-zone debt. Late on, euro-dollar was at $1.3875, near the top of the session's $1.3852/88 range (defence of an option barrier at $1.3850 cushioned the lows).

The market remains wary of risk assets with direction to again be dictated by equity market action. Data highlights today include Eurozone and UK manufacturing PMIs ahead of US PCE and ISM data later on. In view this week are rate decisions from the RBA (+25bp expected), Norges Bank (pause in recent hiking cycle), BOE (halt in asset purchase prgramme in Feburuary), ECB (no change). US jobs data is the main focus, released Friday.

Euro-dollar opened Asia around $1.3862 (NY low) and was under pressure in early trade on strong euro-yen selling. Move suggested to have been prompted by market reaction to weekend comments from UK FSA Head Lord Turn 'signalling' a crackdown on carry trades, which triggered early sales of Aussie-yen. A major US name was linked to early heavy sales but move ran into decent demand placed ahead of a reported barrier at $1.3850 which cushioned the move at $1.3853. Reversal in euro-yen (Aussie-yen bounced away from its 200 day m/a at Y79.12, Y79.00 low) took euro-dollar back to $1.3888.

Rate eased back to retest the early lows, getting rejected again with recovery this time passing through the earlier Asian highs into Europe, extending to $1.3895. Rate currently trades around $1.3892. Offers seen placed between $1.3900/10, more toward $1.3920 ahead of $1.3940/50. Support remains ahead of the mentioned barrier at $1.3850, with stops placed on a break of $1.3845. Stronger demand expected to emerge between $1.3835/25 ahead of $1.3800 (50% $1.2455/1.5144).

Government bond supply this week in the eurozone is due from France, Germany, Spain and the Netherlands and is expected to ease to E22.0bln vs E27.8bln last week.

RES 4: $1.4265 21-day moving average
RES 3: $1.4195/18 High 25 Jan, Low 22 Dec
RES 2: $1.4032 Low 21 Jan
RES 1: $1.3975 5-day moving average


SUP 1: $1.3820 Current base of the daily Bollinger band
SUP 2: $1.3825 Low 22 June
SUP 3: $1.3801 50% retracement of March/Dec rally
SUP 4: $1.3736/50 50% post-Oct 2008, 61.8% April/Dec rally, Low 16 June

Took some light buy stops out in Friday's trade but ran into good offers layered between Y90.80-Y91.00 posting a high of Y90.93. The market has tested lower briefly overnight, Y89.76 the low, as selling pressure in Asian trade (notably Aussie-Yen) came in after a UK Telegraph report that the head of Britain's Financial Supervisory Authority was looking to crack down on carry trades by limiting leverage for such activity.

The dip was short lived however as models and Japanese retail names sold yen. The pair now trades back to Y90.35 as the dollar buying continues ahead of good support in the Y89.00-Y89.30 zone (50% Fibonacci retracement and Ichimoku Cloud Support). Initial resistance on the topside is at Y90.40 (highs in the Asian session) and then stronger resistance at Y90.93 (Fridays high).

RES 4: Y92.65/80 High 11 Jan, 200-day moving average
RES 3: Y91.87/05 Highs 21 Jan, 14 Jan
RES 2: Y91.15/50 21-day moving average, Kijun line
RES 1: Y90.55 Recent highs 22/28 Jan, Tenkan line of the Ichimoku cloud


SUP 1: Y89.14/30 Low 27 Jan, Top of the Ichimoku cloud
SUP 2: Y88.95 Low 18 Dec
SUP 3: Y88.55 Base of the Ichimoku cloud
SUP 4: Y88.24 61.8% retracement of the 26 Nov rally

Opened the Asian session around $1.5950, off from its late NY posted low at $1.5983, with rate coming under early cross yen led pressure that took it on to $1.5936. Recovery in cross yen led cable up to highs of $1.5993 before momentum faltered and rate eased back to retest lows as markets tracked Asian equity markets lower. Fresh demand emerged at the base allowing rate to slowly recover through the balance of the Asian session, pushing back to $1.5975/80 into early Europe.

Recovery presented stale longs an exit with rate quickly dropping back to $1.5950. Support seen at $1.5950, a break to allow for another challenge on $1.5936. Below here and rate can squeeze on to $1.5915 with bid interest suggested to begin from here, strengthening toward $1.5900 ($1.5896 Jan7 and 2010 low). Resistance $1.5980 (76.4% $1.5936/93), more from that early high at $1.5993 through to $1.6000.

RES 4: $1.6270/80 100, 55-day moving average
RES 3: $1.6230 200-day moving average
RES 2: $1.6160 21-day moving average
RES 1: $1.6080 5-day moving average, Low 22 Jan


SUP 1: $1.5898 Low 7 Jan
SUP 2: $1.5833/50 Low 30 Dec, Current base of daily Bollinger band
SUP 3: $1.5770 Low 28 Sep
SUP 4: $1.5708 Low 13 Oct


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