Monday, May 3, 2010

Euro Shorts Squaring Over Weekend

Briefing
Sterling demand was seen into early Asian trade, prompted by the positive showing by Conservative Cameron in the final pre-election debate, which allowed cable to push to early session highs of $1.5366, extending Thursday's recovery to $1.5342.

Month-end fixings are expected to prompt dollar sales, with sterling and the euro predicted by models to be the major beneficiaries.

Euro
Euro-dollar opened the Asian session around $1.3235 and initially dipped to $1.3227 before picking up a bid tone as market reacted to an FT piece suggesting that Greece has accepted the outline of E24bln in austerity measures required to secure EU/IMF debt aid. Along with the strong rally in cable, and early demand for euro-yen (end month/Goto-bi Day), the rate was pushed to an early high of $1.3266 before the move met headwind sales ahead of reported strong offers at $1.3270. Euro-yen reversed tack, a Japanese agricultural bank a noted seller of the cross which weighed back, the move down gaining momentum as traders pared risk on a WSJ report suggesting Federal prosecutors are conducting a criminal investigation into whether GS, or its employees, committed securities fraud in connection with mortgage trading.

Rate squeezed to lows of $1.3223. Rate recovered to $1.3250/55, aided by positive Greek comments from EU Barroso, eased to $1.3235 ahead of Europe before rallying to $1.3260. End month fixings expected to see dollar sales versus euro. Offers $1.3270, $1.3300. Support $1.3225/20.

RES 4: $1.3692 High 12 Apr
RES 3: $1.3495 Channel top 3 Dec
RES 2: $1.3420 High 22 Apr, 21-day moving average
RES 1: $1.3260 5-day moving average

CURRENT LEVEL: $1.3252

SUP 1: $1.3114/28 Low 28 Apr, 50% projection level, Bollinger band
SUP 2: $1.3082 Support line from 18 Feb
SUP 3: $1.3057 38.2% retracement of $0.8232 to $1.6039
SUP 4: $1.3022 Projection calculation from Dec, Jan downmoves


Yen
Opened in early Europe around Y94.06 and Y124.60 Another tight range for dollar-yen overnight trading Y93.89-Y94.19 however traders report decent size flow is going through. Today is the last trading day for April and the weekly and monthly close are seen as being an important indicator for dollar-yen and could have some bearing on the next big move in the pair. Traders note that a weekly close above Y94.30 would be seen as positive for dollar-yen as the weekly Ichimoku cloud line is at Y94.28 and the pair have not closed above the cloud on a weekly basis since July 2007.

We also have the 21 month moving average at Y94.75 and a close tonight above this level would be seen as being pivotal and could open up more topside for the pair. A quiet night overnight for euro-yen with the cross consolidating ahead of Y125.00 traders report interest to sell ahead of this level with stops said to be building behind.

RES 4: Y95.05/09 High 24 Aug, Res line 7 Jan, high, 61.8% of 2009 decl
RES 3: Y94.72/78 76.4% retracement of Aug/Nov decline, High 2 April
RES 2: Y94.65 Current top of the Bollinger band
RES 1: Y94.37 High 26 April

CURRENT LEVEL: Y94.06

SUP 1: Y92.95 Tenkan line of the Ichimoku cloud
SUP 2: Y92.75 Low 22 Apr
SUP 3: Y92.59 Minor support line 4 Mar
SUP 4: Y91.60/67 Low 19 Apr, 61.8% of 18 Mar to 2 Apr rally


Cable
Opened Asia around $1.5330, initially easing to $1.5315 before picking up a fresh bid tone. Conservative Cameron was seen as the 'winner' in last night's pre election debate and boosted hopes that his party could win an overall majority prompted the renewed demand, along with model forecasts suggesting that the pound will be a major beneficiary of month end dollar sales. Rate pushed to a high of $1.5366 before momentum faded, the rate then easing back on cross yen sales with risk positions pared as market reacted to a WSJ report suggesting a Federal investigation into GS. Cable eased back to $1.5320, recovered to $1.5350 before another drop back to retest earlier lows.

Rate then began to pick up a fresh bid tone ahead of the European open, the rate moving through Asian highs into Europe on reported model demand that has taken it on to $1.5381. Move saw euro-sterling break its overnight range of stg0.86295/0.8641, placing pressure on support around stg0.8625. Cable trades back around $1.5365. Offers remain at $1.5380/85, a break to open a move toward $1.5400 ahead of $1.5420. Support $1.5325/15.

RES 4: $1.5810 100-day moving average
RES 3: $1.5580 High 23 Feb
RES 2: $1.5520/22 Bollinger band, High 15 Apr
RES 1: $1.5340 21-day moving average

CURRENT LEVEL: $1.5333

SUP 1: $1.5126/30 Low 28, 6 Apr
SUP 2: $1.5078 61.8% retracement of April recovery
SUP 3: $1.4802 Low 25 Mar
SUP 4: $1.4783 Low 1 Mar

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