At a glance:
A mixed day for the USD as prices finally consolidated after testing the next line of important support levels. Still, the reversal in the USD from last week’s highs suggests an increased risk that a deeper retracement is underway particularly with equities maintaining the bullish shift from last week’s lows. Note this is in line with the violation of several key support levels highlighted by the 78.50/15 zone for the DXY, as well as the 1.3520/75 area for EUR/USD. For now, the focus turns to the next line of key resistance levels including the 77.30/76.79 levels for the DXY, as well as the critical 1.3796/1.3937 zone for EUR/USD. As important, note the S&P will face an important test at the 1190/1200 zone, before the critical 1220/30 range highs. Again, these levels will now define whether a more sustained retracement from the late-August USD lows is underway.
The price action for commodity currencies continues to demonstrate an improved tone consistent with the bullish shift for risk sentiment and last week’s reversal patterns. Still, we note the next line of key levels are also in focus and argue for some near term retracement. Importantly, AUD/USD has thus far held critical resistance in the 1.00/1.0150 zone which represents the September breakdown area. While we sense some additional pause will likely to develop against here, we now see a shift towards buying dips and looking for a deeper upside retracement. For NZD/USD, the focus has shifted to the important .7960/.8000 resistance area which should be pivotal in defining whether a deeper corrective phase can develop. Again, USD/CAD faces an important test at the 1.0235/1.0144 levels.
The pullbacks in USD/Asia also suggest a higher risk that a deeper retracement is underway as key initial support levels have given way. Still, further confirmation is necessary particularly with USD/KRW holding the 1160/1155 area, while the 1.2740/15 area remains intact for USD/SGD.
Trade Strategies:
° Short 2 units EUR/HUF from 298.65 risking 308 targeting 271/265.
° 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 69.00 targeting 60.50/58.50.
° Short 2 units PLN/HUF from 68.604 avg risking 68.600 targeting 64.00.
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J.P.Morgan
Global FX Strategy