At a glance:
The risk trade accelerated higher yesterday as the USD extended through the next line of key support levels. As the price action continues to demonstrate a bullish trending bias, note that we see a very important test for equities with the S&P approaching the 1220/1230 resistance zone and August/September range highs. Given the importance of this area, we cannot rule out some initial pullback and a bounce for the USD. Note this is also consistent with the test of several key levels for the DXY and several USD pairs. In that regard, note EUR/USD has shifted back to the important 1.3835/1.40 zone and September breakdown area which should allow for some pause to the one-way advance from last week’s low. Similarly, the DXY faces an important test at the 76.79/76.20 area will be the key test as breaks confirm at least a short term top and deeper retracement underway.
In line with the improved risk sentiment, commodity currencies continue to lead the way. Importantly, note AUD/USD broke through the critical 1.0140/1.0180 resistance area yesterday while suggesting at least a short term low in place and higher risk that a deeper upside retracement is underway as the focus now turns to 1.0235 and then the key 1.0385/1.0435 zone. For NZD/USD, the .7960/.8000 resistance area and the .8120 September breakdown will now be the key test defining whether a deeper corrective phase can develop. Again, USD/CAD faces an important test at the 1.0144/1.0095 area, although note the 1.0030 September breakout is the more important test.
Note that yesterday’s bullish reversal in USD/JPY finally suggests a potential break of the almost two-month range. The 77.86 Sept peak is now the key test as breaks would confirm the onset of a deeper short term retracement. Note the action in the crosses argues for additional JPY underperformance as well with the 107/108 area for EUR/JPY now acting as the critical test. The pullbacks in USD/Asia also suggest a higher risk that a deeper retracement is underway as key initial support levels have given way. Now see a key test at the 1155/60 area for USD/KRW, while yesterday’s bearish reversal pattern in USD/SGD implies a higher risk that a deeper retracement is underway.
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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http://www.easyforexnews.net/wp-content/uploads/2011/10/JPM_FX-Techs_2011-10-12_694661.pdf
J.P.Morgan
Global FX Strategy