At a glance:
The mixed tone for the USD continued yesterday in line with the short term themes. Again, the key levels remain well-defined and should help define short term direction. While the range bias prevails, the price action over the past few days has developed in a corrective manner.
Again, this is consistent with the expectation for additional short term USD strength following the impulsive nature of the rally from early-last week (following the JPY intervention. In that regard, the DXY has pulled back in a corrective manner after approaching the key 77.85/78.00 resistance zone as the 76.00/75.73 support area should define whether a deeper pullback can develop. Similarly, EUR/USD sees important nearby support 1.3600/1.3570 area as breaks should set the stage for a retest, if not break of the important 1.3400/10 zone. In terms of trending markets, Gold has extended above key resistance levels near 1760 and 1778 while suggesting further upside in the offing. The focus is now on the 1806/1821 resistance levels.
While AUD/USD held key support in the 1.0230/1.0185 area, the bounce has a corrective spin so far and the decline from late-October peak suggests a growing risk for another push lower. Initial resistance rests at 1.0445/1.0505 and then 1.0625. Similarly, NZD/USD can see some additional near term upside retracement following Thursday’s reversal pattern, but the short term downside risks remain intact. Bounces should find resistance in the .8000/60 area, while new lows target the .7700/.7650 zone. USD/CAD has shifted back to key near term resistance levels but the intraday charts show a potential inverse head and shoulders pattern as the focus is on the 1.0230/1.0275 resistance levels. It seems as though CAD still has the potential to lag the field particularly as AUD/CAD maintains a near term bullish bias against 1.04, while NZD/CAD effectively held the important .7920/05 support area – although we continue to point out that the overall setup looks like a broader topping pattern.
For USD/Asia, the reversal from the key 1100 support area for USD/KRW maintains the short term range action with resistance at 1135 and then the 1150/55 areas now acting as key resistance which should hold to maintain the bias for a quick return to the underlying downtrend. Similarly, USD/SGD faces an important initial test at the 1.2865/1.2915 zone.
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 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 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.
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J.P.Morgan
Global FX Strategy