Wednesday, May 26, 2010

Rolling Back on Risk Positions in Asia

Briefing
The dollar was mixed in the Asian session, marking modest gains versus the euro and other major currencies but unchanged against the yen, as market players in the region rolled back on risk positions, having earlier favoured risk appetite after Wall Street's late recovery.

Euro-yen fell from an early high near Y111.95 to a low of Y110.50, as those early risk positions were reduced. The cross opens into Europe around Y110.80.

Euro-dollar was last at $1.2280, at the low end of a $1.2271 to $1.2389 range.

Dollar-yen tracked other yen crosses lower after opening with modest gains. The pair briefly perked up to a Y90.51 high before sell orders pushed it down, slipping to a low at Y90.00 but was last trading about unchanged, around Y90.20. We are now picking up talk of decent demand interest placed in the area between Y90.15/00, with an Asian reserve manager mentioned.

Fed Bernanke comments were highlighted for the risk aversion overnight, traders reacting to him saying that he doesn't want to provide dollar-swaps on permanent basis. General dollar demand again lifted Asian pairs with the BOK again noted intervening to sell dollars. Equity markets remain in focus, with end of month positioning becoming more influential.

Euro
Euro-dollar opened Asia around $1.2345, the late recovery rally on Wall Street enabling the rate to push higher into the close from intraday lows of $1.2177. Rate moved above the NY high of $1.2353 and punched on to an early extended high of $1.2388 on the early risk appetite. However, early Tokyo quickly reversed this sentiment, selling into euro-yen's recovery. Rate retraced lower, with reported comments from Fed's Bernanke that he doesn't want to provide dollar swaps on a permanent basis, providing the added weight to take rate down to session lows of $1.2271. Rate recovered to $1.2310, as Asian equity markets edged higher.

Rate was slipping back into early Europe, trading back to $1.2275 before market reacted to comments from OECD Chief Economist that the euro has been overvalued for too long (Le Figaro), taking it down to $1.2263. Rate currently trades around $1.2276. Bids reported at $1.2260/50, a break to open a deeper move toward $1.2225/20. Resistance $1.2290/00 ahead of $1.2320/25.

RES 4: $1.2929/50 50% of 12 April decline, High 7 May
RES 3: $1.2731/35 61.8% of 10 May, 38.2% of 12 April declines
RES 2: $1.2715 21-day moving average
RES 1: $1.2673 High 21 May

CURRENT LEVEL: $1.2304

SUP 1: $1.2177 Low 25 May
SUP 2: $1.2135 50% of post-launch range
SUP 3: $1.2035/49 Lows April, Support line 22 Dec
SUP 4: $1.2000 Base of the daily Bollinger band


Yen
Recovery on Wall Street prompted risk appetite into the NY afternoon, with this tone continuing into early Asia before Tokyo opened to counter the move. Strong sales of yen crosses by Japanese exporters and retail accounts (Japanese insurance companies were noted heavy euro sellers, looking to move away from the currency) took euro-yen from early extended highs of Y111.95 to session lows of Y110.50, the move dragging dollar-yen from its early highs of Y90.51 to Y90.00. Euro-yen recovered to Y111.25, as rate tracked Asian equity recovery only to drop back again to Y110.55 ahead of the European open. Rate recovered to Y111.05 into Europe only to ease again to Y110.70.

Rate currently trades around Y110.75. Asian sovereign demand interest between Y90.15/00 helps to buoy this rate into early Europe, the rate having recovered off overnight lows to Y90.35, currently trading around Y90.20. A break of Y90.00 to open a deeper move toward Y89.80/70. Resistance Y90.50, Y90.65/75.

RES 4: Y92.55 Top of Ichimoku cloud
RES 3: Y92.35/45 21, 55-day moving average
RES 2: Y91.45/50 Base of Ichimoku Cloud, 100-day moving average
RES 1: Y91.10 200-day moving average

CURRENT LEVEL: Y90.25

SUP 1: Y89.10 Base of the Bollinger band
SUP 2: Y88.95 Low 20 May
SUP 3: Y88.33 Minor support line
SUP 4: Y87.95 Former low


Cable
Opened Asia close to NY recovery highs of $1.4410 ($1.4407) with early buying extending the risk-on rally to $1.4449. Resistance at $1.4450 able to counter the move with rate then reversing as Tokyo sold yen crosses at their open. Reversal gained pace as risk aversion came to the fore as market reacted to comments from Fed Bernanke that he doesn't want to provide dollar-swaps on a permanent basis. Cable squeezed down to initial lows of $1.4365, recovering to $1.4390/95 before slipping back to post session lows at $1.4356 ahead of the European open.

Further sales into the session extended lows to $1.4350, bouncing back to $1.4400/05. Rate currently trades around $1.4398. Support remains in place to $1.4350, a break of $1.4340 to allow for a deeper move toward $1.4310/00. Resistance $1.4405/15 ahead of $1.4430 with stronger interest toward $1.4450, more behind at $1.4465.

RES 4: $1.4765 21-day moving average
RES 3: $1.4726/41 38.2% & 61.8% retracements
RES 2: $1.4645 50% of 10/19 May decline
RES 1: $1.4548 38.2% retracement of 10/19 May decline

CURRENT LEVEL: $1.4385

SUP 1: $1.4260 Low 25 May
SUP 2: $1.4234 Low 19 May
SUP 3: $1.4131 100% projection of May decline
SUP 4: $1.4080 Current base of the daily Bollinger band

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