At a glance:
The USD turned higher after holding a number of key support levels as risk markets shifted gears following the positive tone from the last few days. Again, the very short term setup suggests that prices are likely to be two-sided as the key initial parameters are now well-defined. In that regard, the DXY has once again held the key 76.50 support area and last week’s lows, while the 78.00/16 area will act as key resistance. Similarly, EUR/USD still faces an important test at the 1.3815/75 zone as breaks are necessary to argue for a deeper retracement. Still, we note the USD rally from the late-October low has developed in a five-wave pattern. So while the short term setup for the USD is overbought, this rally implies a higher risk for additional upside follow-through beyond any near term pause that may develop. Where we see potential for the USD to maintain the weak tone is against JPY. Again, USD/JPY should maintain the grind lower after failing at critical 79.50/80.25 resistance zone. With intraday break of the 76.95/90 support area, the focus is now on the 76.35 area but the risks of a retest of the 75.31 low have increased. Moreover, the action in cross JPY maintains a heavy tone particularly on a break of important support levels highlighted by the 104.75 area for EUR/JPY and the 77.50 zone for AUD/JPY.
For the commodity currencies, the setup suggests some additional near term retracement can develop following the test and hold of key support levels particularly at the end of last week. However, yesterday’s reversals affirm the corrective nature of the retracement. The 1.0070/00 area (50% retracement of the October rally and the early-October breakout area) for AUD/USD has thus far contained the downside. With a five-wave decline from the late-October peak, the near term setup suggests some additional retracement is likely. Resistance in the 1.0403/47 zone stays key and should be where prices struggle (50% retrace, early-Nov reaction highs and 200-day MA). Note that EUR/AUD is pulling back after holding key short term resistance in the 1.3470/1.3540 zone. For NZD/USD, the .7915/20 area will be key resistance following the reversal from the .7765/00 support zone. USD/CAD traded a bullish reversal yesterday as the short term range bias persists. Note that the 1.0077/54 area will now act as important near term support. For the crosses, we continue to focus on NZD/CAD and the .7920/.7850 support zone as breaks would imply the onset of a deeper corrective phase.
Trade Strategies:
- Short 2 units EUR/USD from 1.3938 risking 1.4380 targeting 1.2650/1.1900.
- Short 2 units EUR/MXN from 18.4990 closed at 18.4083.
- Long 4 units USD/CZK from 17.255 avg risking 16.50 targeting 23.50.
- Short 4 units EUR/INR from 64.90 risking 71.50 targeting 60.50/58.50.
- Short 2 units GBP/USD from 1.6006, add 2 units at 1.6250 risking 1.6500 targeting 1.5100.
- Short 2 units PLN/HUF from 70.4560 risking 72.00 targeting 67.00/64.50.
- Long 2 units EUR/CZK from 25.620 risking 24.75 targeting 28.30/29.015.
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J.P.Morgan
Global FX Strategy