At a glance:
The USD broke higher as risk sentiment continued to deteriorate. The break through several key resistance levels argues for additional USD strength over the short term particularly given the trending bias to yesterday price action. In that regard, the DXY pushed through the key 75.00/35 area, while EUR/USD violated the important 1.4285/45 support area. This should allow for additional weakness as the focus now turns to the 75.94/76.36 zone which includes the critical downtrendline from the June high as well as the May peak, while EUR/USD stays vulnerable to a test of the 1.40/1.39 zone. In line with risk sentiment, note the S&P is quickly approaching critical support in the 1257/1249 zone which includes the 200-day moving average and the March low. Breaks would confirm a more negative setup for risk implying further deleveraging is in the offing.
The commodity currencies maintain the short term range bias, but yesterday price action is consistent with the view for additional weakness. We continue to see an important test at the 1.0510/1.0440 support area for AUD/USD as breaks should elicit a deeper corrective phase. Moreover, yesterday impulsive rally in USD/CAD after again holding the key .9640 support zone implies a higher risk of further upside with the .9850/55 resistance area defining a test of the .9900/.9975 zone. NZD/USD violated the key .8080 March trendline support yesterday implying a higher risk of additional weakness with the .8020/00 support area standing in the way of a deeper pullback. Note that we still see risk of additional underperformance on the crosses given the sharp rally in AUD/NZD and the growing potential of a corrective phase for NZD/CAD.
USD/JPY shifted higher in line with yesterday USD strength while breaking key nearby resistance levels including the downtrendline from the late-May high. Despite this, while some additional near term retracement seems likely against the critical 79.56 support/May low, the short term bearish setup remains intact following the reversal from the 81.75/82.25 resistance zone. Again, violations would confirm a deeper pullback and closer test of the 78/77 support zone.
Trade Strategies:
- Short 2 units EUR/INR from 63.30 risking 68.50 targeting 55/52.
- Short 2 units PLN/HUF from 68.604 avg risking 68.600 targeting 64.00.
- Short 2 units USD/RUB from 29.450 risking 29.20 targeting 26.24.
- Long 2 units EUR/AUD from 1.3364 risking 1.3550 targeting 1.4300.
- Short 2 units EUR/USD from 1.4408 risking 1.4750 targeting 1.3910/1.3450.
- Long 1 unit NOK/SEK from 1.1645 risking 1.1490 targeting 1.2115.
J.P.Morgan
Global FX Strategy