Archives of “Forex” category

rss

USD/JPY creeps higher as risk appetite continues to improve

  
Analysis, Forex

USD/JPY up 15 pips

Japanese stocks are racing higher with the Nikkei now up 1.5% to the best levels of the year.
S&P 500 futures are up 16 points (+0.4%) after a 15 point gain. I expected that vaccine efficacy news might hurt sentiment but on the flipside, it appears that Biden and Congress are leaning into a big stimulus package and that’s dominating sentiment.
USD/JPY up 15 pips
Zooming out, USD/JPY is flirting with the 200-day moving average. CitiFX is out with a note highlighting heavy options expiries at 105 on thinner liquidity around the lunar new year.

USDJPY daily

China drains liquidity from markets ahead of Lunar New Year

  
Analysis, Forex

China has withdrawn 320 billion yuan ($49.5 billion) from financial markets in about two weeks, as authorities focus on removing excess liquidity to tame the surge in property and asset prices.

It is rare for China to curb liquidity ahead of the Lunar New Year holiday, which starts on Thursday this year. The move could hinder the country’s economic recovery from the coronavirus-induced slump, with effects spilling into overseas markets as well.

Though the People’s Bank of China said Friday it would inject 100 billion yuan into the markets ahead of the holiday, another 100 billion yuan worth of operations matured that day, resulting in no net change to liquidity. The two-week interbank lending rate remains relatively high at almost 3%.

The overnight rate topped 6% at one point in late January.

China’s central bank usually increases liquidity in the weeks leading up to Lunar New Year, when many Chinese return to their hometowns or travel. The bank had injected 600 billion yuan into the markets by a week out in 2020, and 500 billion yuan in 2019.

Less demand for cash than usual is possible, as authorities discourage travel due to the pandemic. (more…)

Australian dollar finishes strong in run to the highs of the week

  
Analysis, Forex

Australian dollar up 65 pips to 0.7665

Australian dollar up 65 pips to 0.7665
This is a nice looking reversal but there’s no strong signal here. It’s back testing the lower bound of the January range and that’s going to offer some resistance.
The RBA was surprisingly dovish this week. I don’t think that’s going to last and there are some big commodity tailwinds for AUD but it’s been a struggle so far this year following the big run to end 2020.
In the bigger picture, the US dollar looks better as growth there accelerates but AUD is also very well positioned for expansion. I wrote about CAD/JPY earlier and I think it’s a similar story. Why pick between AUD and USD when you could own either of them against JPY or CHF?

CFTC commitments of traders: EUR long position trimmed but still the largest speculative position.

  
Analysis, Forex

Weekly forex futures positioning data from the CFTC for the week ending Tuesday, February 2, 2021

  • EUR long 137K vs 163K long last week. Longs trimmed by 26K
  • GBP long 10K vs 8K long last week. Longs increased by 2K
  • JPY long 45K vs 45K long last week. Unchanged
  • CHF long 15K vs 10K long last week. Longs trimmed by 5K
  • AUD short 1K vs 1K long last week. The speculative position went from long 1K last week to short 1K this week
  • NZD long 12K vs 15K long last week. Longs trimmed by 3K
  • CAD long 14K vs 14K long last week. Longs increase by 4K
  • Last week’s report
Below is a chart of the EUR speculative position going back one year.
EUR speculative position

Dollar momentum hinges on extended downside break in EUR/USD, what levels to look out for?

  
Analysis, Forex

EUR/USD holds below 1.2000 but price action centers around its 100-day moving average ahead of non-farm payrolls

EUR/USD D1 05-02
Sellers have kept with the downside break below support @ 1.2059-64 earlier in the week and even took out the 1.2000 handle in trading yesterday.
However, there is some added support from the 50.0 retracement level of the November swing move higher and the 100-day moving average (red line) @ 1.1967-76 now.
That is the key region to watch ahead of the closing stages of the week as the dollar trades to a two-month high ahead of the non-farm payrolls report later in the day.
As much as one wants to argue for/against dollar strength at this point in time, the charts continue to tell the story in trading this week – as it has for the most part.
In the case of the dollar’s upside run, I would argue that hinges on a break of EUR/USD below the support region currently highlighted above.
As for buyers, holding above that and pushing back above 1.2000 would be the first step in trying to break the dollar’s recent resurgence to start the new year.
That said, a further break to the downside from hereon is likely to only exacerbate dollar gains even more in the coming sessions with little in the way of EUR/USD from pushing back towards the 1.1888-00 region next.
What that means is that should the dollar extend its run higher from hereon, expect gains to be sharper across the board as more and more technical levels give way.
Adding to that will be a potential run in USD/JPY above its own 200-day moving average.
Another moving part to be mindful about is the technical breakdown in EUR/GBP below 0.8800 currently. That opens up a potential move towards the lows from April to May last year at around 0.8671-82 and that could spell further downside for EUR/USD.

EURGBP trades to lowest level since May 2020

  
Analysis, Forex

Run higher in GBPUSD and run lower in EURUSD sends the EURGBP down

The EURGBP is one of the biggest mover’s today as bearishness in the EURUSD sends that pair lower, while the GBPUSD as moved higher after the BOE turn its back on negative rates.
Run higher in GBPUSD and run lower in EURUSD sends the EURGBP down
The moved to the downside has taken the price to the lowest level since May 12. Looking at the daily chart, the pairs low has also tested the underside of a broken trend line at 0.87466. The low price today reached the 0.87505. Buyers may be leaning. Staying on the daily chart, a move lower would next target the 61.8% retracement of the range since December 2019. That level comes in at 0.87326.
Last Thursday, the price high stalled near the 50% retracement at 0.88788 and started the push lower and away from that midpoint and swing area (see green numbered circles and yellow area). Going forward, staying below the swing area keeps the bears more in control from the daily chart perspective.
Drilling to the hourly chart, at the highs today, the price tested its  200 hour moving average (green line in the chart below), but found sellers leaning against the level. Those traders were rewarded after the Bank of England decision with the tumbled lower. The close today did crack below a lower channel trendline, but quickly reversed. That trend line has reestablished as support currently at 0.8756. It would take a move below that level to solicit more selling from a technical perspective on this chart. On the topside the 0.87948 low from Tuesday is now resistance. That level is also the midpoint of today’s trading range.
EURGBP on the hourly chart

US dollar extends the decline as risk trades continue to march higher

  
Analysis, Forex

Fresh highs in the antipodeans and cable

This is turning into quite a day in the stock market as the S&P 500 rallies 80 points, or 2.1% in the best day of the year. The dip has been bought and yesterday’s huge decline is now nearly wiped out.
The banning of trading in meme stocks was the greenlight for ‘situation normal’ in markets and ‘situation normal’ means ‘buy the dips’.
It’s also a big unwind of the outside moves in currencies yesterday. The commodity currencies have now taken a bit bite out of yesterday’s losses and cable has completed the round trip. The move is extending as I write and AUD/USD.
Fresh highs in the antipodeans and cable
There might be a bit of resistance at 0.7700 in the short term.

Dollar continues to hold slightly firmer, risk showing some hints of calming down

  
Analysis, Forex

The risk rout calms down ahead of North American trading

The greenback continues to lead the charge in the major currencies space but gains have been trimmed somewhat across the board as risk sentiment exudes some calmer tones.
The DAX fell by nearly 2% earlier in the session but has trimmed losses well beyond opening levels to be down by just 0.6% currently. Elsewhere, S&P 500 futures are down by 0.2% after briefly turning flat as compared to the roughly 1% drop earlier.
Of note, even the pickup in the VIX yesterday is starting to abate a little but it may still be too early to draw much conclusions until Wall Street enters the fray later.
 
VIX
The overall risk mood remains fragile still following the battering yesterday and while there are some calmer tones now, it may yet turn chaotic once again later in the day.
As for the dollar, it is mostly reacting to how risk sentiment is playing out over the past few sessions so expect more of the same ahead of the weekend.

China’s yuan – “nowhere for it to go but down” & intervention coming

  
Analysis, Forex

Scanning some pieces, this from Friday has comments on the levels ahead for the Chinse yuan.

Dan Rosen, a senior associate at the Center for Strategic and International Studies.
  • “There is nowhere for it to go but down” 
  • “Over the course of 2021, the question will be how much does the renminbi subside against the dollar”
  • “I think we’re going to see them intervene to put some bands around [the yuan]” 
Derek Scissors, at the American Enterprise Institute and also chief economist at China Beige Book:
  • China will intervene to keep the yuan from strengthening much further
  • and then controlling a slow depreciation as the US economy recovers
If you do check out that link above there is a wider discussion on US-China relations.
Scanning some pieces, this from Friday has comments on the levels ahead for the Chinse yuan.
Go to top