At a glance:
Another choppy session as the market maintains the two-sided bias. While the action continues to be driven by headlines, the key levels remain well-defined as we approach the weekend events. As mentioned in recent updates, the short term setup continues to argue for additional retracement to the bullish risk trends that have persisted since earlier this month. This is in line with the short term momentum extremes and the effective test and hold of the key USD support levels highlighted by the 1.39/1.40 zone for EUR/USD, the 76.70/00 area for the DXY, as well as the critical 1.0350/1.0425 zone for AUD/USD. Moreover, the 1230 resistance area and range highs for the S&P will continue to define whether the risk trade can extend. In turn, the focus is now on nearby USD resistance starting with the 1.3675/25 area for EUR/USD, as well as the 77.50/77.95 zone for the DXY stays critical. While still at risk that this corrective phase turns into a sideways range, breaks should confirm the onset of a deeper retracement. Holding initial levels would confirm this corrective phase will continue to develop with a range bias.
We continue to see the commodity currencies at risk after holding key levels. For AUD/USD, a retracement into the 1.01/1.00 area in the days ahead remains likely following this week’s failure. USD/CAD effectively held the 1.0030 September breakout this week while suggesting the near term risks point higher with a break of the 1.0265/85 area defining a shift back to the 1.0350/1.04 zone and ideal sell zone. For NZD/USD, Monday’s reversal seems consistent with the view for additional retracement after failing amid the .8000/.8120 area which includes the September breakdown. Support in the .7860/.7745 zone will define whether a deeper short term pullback is underway.
The near term setup for USD/Asia continues to argue for some near term upside retracement after testing and holding the next line of supports. Note the 1130 area for USD/KRW and the 1.26/1.25 zone (200-day MA) for USD/SGD should allow for some bounce, but note we will be looking for better location/setup to establish short positions. Note that USD/INR is shifting higher as the short term range below the September high appears ready to breakout to the upside. Still, we note that 50.30/50.60 zone will act as the next line of important resistance.
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 69.50 targeting 60.50/58.50.
° Short 2 units PLN/HUF from 68.604 avg risking 69.15 targeting 64.00.
J.P.Morgan
Global FX Strategy