At a glance:
The risk-on trade accelerated yesterday with an extension of the bullish risk trade. In line with the global strength in equities and the S&P breaking through important resistance including the 1258/1274 levels, the USD broke down below a number of important support levels.
In that regard, the push through the critical 1.39/1.40 area for EUR/USD and the violation of the 76.00/75.80 support area for the DXY has led to an extension of the recent USD weakness. Still, for the near term setup, we do think that some retracement is due following the one-way move from yesterday. The quality of which will be important particularly as the short term momentum studies are hitting extreme levels. Given the upcoming monthly close, note the USD will likely confirm bearish monthly reversal patterns for most of G7. Likewise, the S&P will confirm a bullish reversal month – the first one since the important July ’10 low.
In line with the breakout in equities, AUD/USD led the way yesterday following the impulsive breakout through the important 1.05 area. The focus is now on the 1.0766 September high which should allow for some pause. Still, with little evidence of a sustained reversal, near term corrective retracements are viewed as buying opportunities. Note that breaks of the September high would put the July peak back on the radar screen. NZD/USD extended above the key .8120/50 resistance zone yesterday. Again, this area includes the September breakdown area as the focus turns to the .8250/.8315 levels. Also, USD/CAD extended below the key 1.0030/00 zone as the risks point to a closer test of .9885/.9780 levels. Yesterday’s declines in USD/Asia renewed the trending bias while violating a number of important support levels. USD/KRW broke through key support in the 1125/20 zone and as the critical 1100/1095 zone will now define a shift back to the September low. USD/SGD has accelerated lower with a break of the important 1.25/1.2473 zone (200-day MA) implying a closer test of the 1.23 area.
Trade Strategies:
° Short 2 units EUR/USD from 1.3938 risking 1.4380 targeting 1.2650/1.1900.
° Short 2 units EUR/HUF from 298.65 closed at 296.35.
° Short 2 units EUR/MXN from 18.4990 risking 19.50 targeting 15.2800.
° Long 4 units USD/CZK from 17.255 avg risking 16.50 targeting 19.02.
° Short 4 units EUR/INR from 64.90 risking 69.85 targeting 60.50/58.50.
° Short 2 units PLN/HUF from 68.604 avg stopped at 69.20.
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J.P.Morgan
Global FX Strategy