Monday, March 8, 2010

Risk Trades Boosted by Friday's NFP Numbers

Briefing
Friday's release of better than expected US employment data provided a boost for risk trades into late Friday trade, with this trend continuing into Asia Monday. Weekend reports suggesting France and Germany are planning a new initiative to reinforce eurozone economic cooperation aided this view with firm Asian equity markets adding further weight against the dollar and yen as traders continued to favour risk, to the benefit of euro and sterling.

Good demand was seen for dollar-yen and euro-yen into early Asia, pushing the rates up to Y90.69/Y123.80 respectively. Traders however continue to expect counters from FY end exporter supply, though recent reports have downplayed the size of the expected sell interest. Euro-dollar pushed up to a session high of $1.3693 (NY high $1.3631), holding just off into early Europe, with traders noting sell interest placed around $1.3700. The $1.3740/50 area though seen as key to further upside progress. It is a fairly light data calendar for today with the highlight being German IP data at 1100GMT.

Data for the week sees RBNZ and SNB rate announcements Wednesday/Thursday respectively. The RBNZ is expected to keep rates unchanged though the market will focus on the accompanying comments as we could see an increase in hawkish rhetoric. The SNB is also widely expected to maintain its current policy stance at it's quarterly policy meeting on Thursday, but with the franc trading close to its highs a dovish SNB is likely. As mentioned earlier, Monday brings German IP. Wednesday UK IP and Japan Q4 GDP revision, Thursday brings China data and Australian employment, with Friday seeing release of US retail sales and Michigan consumer confidence.

Euro
Euro-dollar opened Asia around $1.3630, initially dipping to mark lows at $1.3615 before pushing higher as Friday's late risk-on tone continued, prompted by the release of better than expected US employment data. Weekend reports that France and Germany are planning a new initiative to reinforce eurozone economic cooperation (FT) also aided this risk positive outlook, with Asian equity markets trading positive helping to boost the tone.

Rate traded to a high of $1.3691 (on reported Asian sovereign book balancing demand) before meeting willing sellers positioned on the approach to $1.3700, the rate settling back above $1.3670 into early European dealing. Resistance seen from around $1.3695 with interest said to extend to $1.3715, encompassing Mar 4 highs at $1.3712. A break here to open a move back toward $1.3736 (Mar 3 high) ahead of key area between $1.3740/50. Support seen back at $1.3655/50 ahead of $1.3630.

RES 4: $1.4026/32 High 3 Feb, Low 21 Jan
RES 3: $1.3838/53 High 9 Feb, Top of Dec/Mar channel, Low 1 Feb
RES 2: $1.3789 High 17 Feb, Current Bollinger band
RES 1: $1.3736 High 3 March

CURRENT LEVEL: $1.3675

SUP 1: $1.3530 Low 5 March
SUP 2: $1.3460 Current Bollinger band base
SUP 3: $1.3420/37 76.4% of April/Dec rally, Low 2 Mar
SUP 4: $1.3404 61.8% retracement of the post-Oct 2008


Yen
Dollar-yen open Y90.42 euro-yen open Y123.66 The dollar-yen opens higher this week after Fridays rally post US NFP data. The dollar-yen has traded up to Y90.65 as Japanese lifers, retail and momentum accounts all buy the dip in Asian trade. However exporters have been reported selling near the highs as traders note this rally is helping the exporters end of year operations as they look to repatriate funds coming into the end of the financial year. The 61.8% Fibonacci retracement of the Y92.15-Y88.13 sell off is at Y90.61 and is providing some initial resistance.

Beyond that traders report the top of the daily Ichimoku cloud is at Y90.98 and the 200dma is at Y91.94. The euro-yen like the dollar-yen performed well post NFP rallying to Y123.55 area. The cross remained bid in Asian trade with talk of a US name buying to trigger some stop loss activity above the Y123.60 area, however exporters were again noted sellers on the rally. with the market stalling ahead of the 76.4% Fibonacci retracement at Y123.91.

RES 4: Y91.95 200-day moving average
RES 3: Y91.24 76.4% retracement
RES 2: Y91.00 Top of the Ichimoku cloud
RES 1: Y90.65/80 61.8% retracement, 55-day moving average

CURRENT LEVEL: Y90.42

SUP 1: Y90.00/15 21 & 100-DMA, Kijun line
SUP 2: Y89.70 Tenkan line of the Ichimoku cloud
SUP 3: Y89.25 Base of the Ichimoku cloud
SUP 4: Y88.13/24 Low 4 March, 61.8% retracement of Oct/Dec rally


Cable
Opened Asia around $1.5130, off Friday's late recovery highs of $1.5149, having seen an initial reactive dip to $1.4993 after release of US payroll data. Rate dipped back to mark session lows at $1.5121 before picking up decent demand interest, the main part seen as a US investment house bought sterling-yen. Rate pushed up to $1.5170 before meeting resistance, the rate dipping back to $1.5130/25 before breaking above on the third attempt, the break taking the rate on to $1.5190.

Rate drifted off through the Asian afternoon, dropping back to $1.5140 ahead of the European open before picking up fresh demand interest that has allowed rate to recover back to $1.5180. Offers seen placed between $1.5190/00, with further interest close behind at $1.5210/15. A break here to open a move toward $1.5230/35 ahead of $1.5250. Support $1.5150 ahead of $1.5130/20.

RES 4: $1.5410/22 21-DMA, 61.8% of Feb/Mar decl, 38.2% of 2010 decline
RES 3: $1.5350 Breakout level
RES 2: $1.5299 50% retracement of post-17 Feb decline
RES 1: $1.5177/86 38.2% retracement, Intraday high

CURRENT LEVEL: $1.5166

SUP 1: $1.4875 Current base of the daily Bollinger band
SUP 2: $1.4781 Low 1 March
SUP 3: $1.4659 High 23 Feb
SUP 4: $1.4619 Low 29 Apr

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