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Category: Trade Ideas

Barclays Technical Analysis: USD to outperform in major FX space

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Barclays Technical Analysis

US bonds sold off on Friday, with the 10 year yield posting a small reversal candle. This is helping to provide a bid for the USD against major FX currencies. EURUSD posted a weekly reversal candle and looks to extend downside while USDCHD and USDJPY extended their recent gains following last Tuesday’s daily reversal candles. We expect the USD to continue to strengthen in the short term.

Tactical opportunities

•  USDJPY upside extension looks towards our targets near 108.75 before a top can form.

•  EURUSD weekly topping candle signals lower. A move below 1.1360 would open targets towards the 1.1215 range lows.

•  USDCHF rally extension points towards the 0.9800 range highs next.

FX Chart Focus and Levels

AUDUSD downside range break lacks previous levels of activity. We expect a period of consolidation. A beak below 0.7330 on increased volume is needed to signal lower towards 0.7210.

AUDUSD-daily-chart-and-volume

Daily volume rankings and highlights

Barclays-Daily-Volume-Rankings

FX at a Glance

EURUSD:  A weekly topping candle encourages our bearish view. A move below our initial targets near 1.1360 would signal lower towards 1.1300 and then the 1.1215 range lows.

USDJPY:  No change. We are bullish in the short term and look for a squeeze higher in range towards the 108.75 area, where we would look for signs of a top. Overall, we are bearish towards 105.20 and then 100.75.

GBPUSD:  A move below our initial downside targets in the 1.4390 area would signal further weakness. Our next targets are towards 1.4300.

USDCHF:  We are bullish. The move above resistance near 0.9725 signals further upside scope towards the 0.9800 range highs.

EURJPY:  We are neutral. A small basing candle on Friday signals short-term upside towards the 123.55 area. Overall, we prefer to fade upticks while the greater range highs near 126.50 caps. Our downside targets are towards 119.90, near the monthly cloud base and then 118.75/115.35.

EURGBP:  We are neutral. Lack of follow through following Thursday’s bearish engulfing candle keeps us sidelined for now. A break either side of the 0.7950/0.7860 would help to provide short-term direction.

EURCHF:  Friday’s rally encourages our bullish view. Our nearby targets area in the 1.1115 area. Beyond there, we are looking towards the 1.1200 range highs.

AUDUSD:  We have turned neutral having reached our initial targets near 0.7330 and expect a period of consolidation. A break below 0.7330 on increased investor volumes would encourage us to re-instate our bearish view towards 0.7210 next.

NZDUSD:  No change. We are bearish against the 0.7055 range highs. A break below nearby support in the 0.6805 area would confirm a top under 0.7055 and open targets near initial targets near 0.6760. Measured targets for the top are towards 0.6665 and then 0.6545.

USDCAD:  We are cautiously bearish USDCAD following a weekly key reversal candle. For now, we prefer to fade upticks against the 1.2995 range highs and look for a move back in range towards the 1.2460 lows. A break above 1.2995 however, would force us to abandon our bearish short-term view in expectation of a stronger upside correction.

 

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Morgan Stanley FX Morning – April 11

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Morgan Stanley FX Morning

 

Why JPY has further upside: We expect further flows from various market participants to continue to support JPY. First, Friday’s reluctance for JPY to weaken (indicating de-risking ahead of the weekend) suggests that ‘the Street’ has not traded JPY long in significant amounts last week. Note that CFTC data showed the most net long positions building in the first four weeks of the year. Instead our client conversations focusing on the BoJ and its ability to weaken JPY are suggesting to us that the market has not fully adopted our view, suggesting JPY strength staying with us for even longer. Second, Japan’s retail accounts may still need to wind down their JPY-funded carry trades, suggesting more of this ‘P&L’ driven JPY buying in store. Third, pension funds and financial institutions’ foreign assets relative to total assets are near historical highs and most importantly still hugely currency-unhedged. The GPIF had allocated 36% of its portfolio to foreign assets at the end of December 2015.

The BoJ’s ability to weaken JPY remains limited, as we highlighted on Friday. Sovereign bond purchase-focused QE can no longer rely on the JGB yield curve acting as a transmission mechanism. Negative interest rates seem to undermine banks and monetary velocity, hence strengthening and not weakening JPY. The BoJ’s tool box appears to be limited to the purchase of private assets such as ETFs. The JPY-weakening impact of such BoJ equity purchases should be limited. The mechanism of JPY weakness in this scenario would be limited to the de-FX-hedging of equity portfolios, where many global equity investors have used JPY as a ‘quasi’ hedge for equity risk. Alternatively, the focus on increasing fiscal spending would require equity market investors to have more faith that Abenomics is going to work in order for JPY to weaken significantly. Bloomberg is reporting that foreign traders have sold Japanese equities for 13 straight weeks, the longest stretch since 1998. This ‘outflow’ from Japan has not weakened JPY as it has been met with a larger inflow from domestic investors.

The likelihood JPY resumes its appreciation is high, but the higher JPY moves, the bigger are the carry trade liquidation pressures. Here we under line our thoughts again. The second-round effects of JPY strength would terminate the US D downward correction, especially against liquid high-yielding currencies with the EM spectrum. Within the DM world it might be AUD suffering most. China’ s CPI remaining steady at 2. 3%Y puts focus on this this week’s trade and GDP data. China’s 1Q GDP will be released on Friday, with a high likelihood of seeing a positive surprise. The Chinese economy seems to be under going a cyclical rebound, while structural issues such as over capacity, low debt and investment multipliers have not been addressed yet. The question is how much of the good cyclical news has been priced in. Should AUD fail to rally following the anticipated strong 1Q GDP report then AUDUSD should have traded its corrective top to near 0. 7730. Within our strategic portfolio we sell AUDUSD near 0. 7650 and we recommend selling AUDNOK as our ‘trade of the week’.

The Fed-JPY link: We put special focus on AUDJPY, which offer s significant downside potential from here should JPY-based investors pile out of carry trades. Another interesting factor driving AUDJPY down comes via the Fed and risk appetite. USDJPY-bearish performance may remind Fed Chair Yellen that there aren’t just winners from a lower USD. Abenomics and the ECB’s Draghi’s “Whatever it takes” approach are the losers. Sure, lower inventories, negative net trade and the weak US manufacturing sector have pushed the Atlanta Fed ‘Nowcast’ GDP indicator to 0. 1%, but this week’s release of March retail sales should provide a timely reminder that US domestic demand conditions have remained growth-supportive. Markets currently under price our call for the Fed hiking rates in December. In addition, 1Q earnings will start to be released in the US today. Actual releases tend to surprise under whelming expectations. Market projections are for an aggregate 6. 9%Y decline of S&P500 listed company profits. Should positive surprises disappoint relative to previous quarters then risk appetite may get hit. If not, it might be rising rate expectations that limit the equity mar ket upside anyway. Whatever the outcome, AUDJPY should receive little support from the risk appetite side of matters.

EURGBP’ s next target is 0.85: The press is reporting that the ‘Save Dave’ political reaction to the release of the ‘Panama papers’ may suggest promoting Justice Secretary Gove to Deputy Prime Minister and allocating a prominent cabinet post to Boris Johnson after the referendum. Some may say this is part of the plan to bring the Conservative party back together but for FX trading it suggests two leading figures of the Brexit campaign increasing their political relevance ahead of the June 23 vote, increasing volatility in GBP. The economic fundamentals are not looking good either with the 7% current account deficit, the 4% budget gap and the UK household sector reporting a 2. 3% decline of its net savings in 4Q, leaving us firmly within the sterling bearish camp. Our favoured way to play this week is to be long EURGBP.

Trades of the week:

G10 – Sell AUDNOK

Our structural bearish view on AUD, based on weak nominal growth, a poor terms of trade outlook and a slowing housing market, is likely to lead to 50bp of cuts by the RBA by year-end. We propose selling AUDUSD on rallies but prefer to sell AUDNOK today. NOK has been fairly shielded during the ups and downs in the oil price recently because of the sovereign wealth fund, and the ability for the government to ramp up fiscal spending if needed may limit the negative impact on the economy relative to other commodity producers.

Despite AUD depreciation over the last few years, Australia’s nominal trade deficit and current account remain near post-crisis wides. China’s rebalancing away from investment, particularly the steel capacity cuts announced in recent months, as well as the excess real estate inventory in Tier 3 cities pose large downside risks to iron ore prices. Furthermore, domestic demand has mainly been supported by the housing boom, which we expect to reverse. With the RBA’s inclusion of negative language on AUD in the most recent statement, we believe that too strong an AUD rally from here increases risks of an RBA cut in the near term, and we expect weaker data in the future. Both would support the trade.

The main risk for the NOK side this week is the lead-up to the OPEC meeting on April 17, with the probability of an agreement to cut production looking low for now. NOK’s correlation with oil is much lower than that of CAD.

We like to sell AUDNOK at market with a target of 6.0800 and a stop at 6.2950.

EM – Buy EURTRY

Evidence suggests that positioning in the Turkish lira has built up meaningfully since the rally in EM currencies started in late January. Lower oil prices, stronger-than-expected growth in 4Q15, which was further emphasised in last week’s better-than-expected IP data, and lower inflation have all contributed to a stronger fundamental footing for Turkish assets recently. One concern is the considerable uncertainty over monetary policy in light of the upcoming appointment of the central bank governor , which could come as soon as this week. The presidency of Turkey does not hide the fact that it would like to see interest rate cuts, and it’s quite likely that TRY will weaken a little ahead of the announcement, but we will only really know the stance of monetary policy once the new governor concludes the first meeting on April 20.

The main risk to the trade would be for the CBT’s initial communications to sound purposefully conservative, given the above considerations, as has been the case in Poland following changes to the MPC earlier in the year. Today will see February current account data released, and the expectation is for just over a US $2.2 billion deficit.

We like to buy EURTRY at market with a target of 3.35 and stop of 3.20.

 

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Credit Suisse research – A top for Japan confirmed

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Credit Suisse Research

 

USDJPY finally confirms a medium-term top

As we have already highlighted on a couple of occasions this year (A major top for  Japan,  20th January),  we  have  been  bears  of  Japan,  looking  for  conclusive reversals of the bull trends in USDJPY and the Nikkei/TOPIX.  The brief spike post  the  BOJ  has  been  aggressively  reversed,  and  for  USDJPY,  the  longlooked for top below 116.15 has in our view finally been confirmed. We  thus  stay  bearish  and  look  for  further  weakness  to  113.99/85  next,  ahead of  support  from  a  rare  price  gap  from  October/November  2014  at  112.56/33. This  should  be  allowed  to  hold  at  first,  ahead  of  the  sell-off  extending  to 110.09/00  –  the  September  2014  high  and  psychological  support.  Bigger picture,  we  target  106.65/60  –  not  only  the  measured  target  from  the  top,  but also the 38.2% retracement of the entire 2011/2015 bull market. Resistance  shows  at  115.85/86  initially,  then  116.15/30,  with  117.54  needing to cap to keep the immediate risk bearish.

For  GBPJPY,  the  recovery  in  late  January  was  capped  by  a  cluster  of  resistances  at 174.87/176.18  –  the  38.2%  retracement  of  the  2015/2016  collapse,  April  2015  low  and falling  13-week  average  –  and  the  subsequent  rejection  from  here  maintains  a  large  top. Key  support  is  seen  from  the  January  2016  and  2014  lows  at  163.99/88,  below  which should  act  as  the  catalyst  for  a  resumption  of  the  downtrend  to  160.02/00,  ahead  of  the 50% retracement of the 2011/2015 bull market at 156.37.

For  EURJPY,  the  stronger  EUR  is  keeping  the  cross,  for  now  at  least,  well  supported above pivotal price and “neckline” support at 126.18/09.  Although a large topping threat is present,  only  below  126.09  would  see  this  confirmed,  turning  the  outlook  bearish  for 124.97 initially, then 121.95.

When  looking  at  the  JPY  in  Trade  Weighted  terms,  a  base  was  completed  at  the beginning  of  the  year.  The  BOJ  spike  was  contained  well  above  the  uptrend  from  June 2015,  and  the  subsequent  strong  rally  maintains  the  base.  We  thus  stay  bullish  and  look for  further  broad-based  JPY  strength.  Given  the  still  strong  relationship  between  the currency and equity markets, this is expected to keep equities under pressure.

For  the  Nikkei,  the  post  BOJ  bounce  has  also  been  quickly  reversed,  leaving  the  market retesting  its  recent  low  and  38.2%  retracement  of  2011/15  rally  at  16055/15.  Below  here, which  we  look  for,  should  confirm  a  medium-term  top  is  in  place,  for  a  decline  to  the  50% retracement  and  price  support  at  14545/30,  then  13885,  the  low  of  2014.  The  measured target from the top though is seen set lower at 12920.

The TOPIX though is already below its 38.2% retracement of the 2012/2015 bull market at 1317, and with a medium-term top already in place, we stay bullish and look for weakness to extend to our 1197/77 next target – the 50% retracement and late 2014 low.

Go  short  USDJPY  at  116.30/117.30,  place  the  stop  above  118.30.  Take  profit  at 106.75.

Go  short  Nikkei  at  17000/17200,  stop  above  17950.  Also  add  below  16000.  Take profit at 13200.

 

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Deutsche Bank G10 Trade Idea of the Week – Short EUR/SEK

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Deutsche Bank Research

Target 9.15, stop 9.52, entry 9.4250
These  are  relatively  good  levels  to  reenter  EUR/SEK  shorts,  Thursday’s
Riksbank  meeting  notwithstanding.  Even  if  the  Riksbank  were  to  cut  rates
again, a very strong domestic data pulse mean that the move should be faded.

Citibank FX Pick of the Day

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Citi Research

CitiFX Strategy – Trade of the week: Sell EURGBP

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CitiFX Wire

 

 

Our weekly trades will provide short term guidance on where we see 1-2 week opportunities in G10 FX markets. Unless we explicitly extend them, they will close out automatically at COB the second Friday after they are introduced.

Trade idea: Sell EURGBP at 0.6998, target 0.6750, stop loss 0.7115

Our view:

  •    GBP should be one of the major beneficiaries of the weekend developments in Greece given its non-USD safe haven status. While there will be potential for some back and forth on EUR following the gap lower on the open on the basis of headlines, the progression of events in the next several days should ultimately see continued pressure given potential for the ECB to remove ELA upon a failure to meet the IMF payment and likelihood for intensifying political strain within Greece. In the background, accelerated ECB asset purchases to limit contagion would represent a further EUR negative. In light of risk for some exaggerated moves on ongoing news flow, we are running a somewhat wider stop than we typically adopt for trade of the week.
  • We prefer GBP to CHF given that direct feedback to UK policy is likely to be limited. Investors will be more tentative on prospects for a 2015 rate hike, but these were already low and BoE policymakers have expressed slight unease with how flat this trajectory is, which could act as a bulwark against more pronounced declines. By contrast, the SNB is likely to be active in FX markets in response to European developments and investors may move to price in a Swiss rate cut, so it presents a less attractive safe-haven.
  • Short EURGBP is likely a consensus view, but positioning does not yet reflect the degree of market conviction. Our flow data shows a pick-up in GBP buying by leveraged investors, but this follows a period of selling and buying in the real money sector has actually begun to taper in recent weeks. As such, investors should have scope to add longs and the technical breakdown beneath key support at 0.7015 may encourage such buying. The breakdown in support beneath this level implies a technical move towards 0.65.

Barclays Daily FX Technical Strategy – Greek developments drive major EUR FX pairs lower

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Barclays PDF FX Research

Barclays Daily FX Technical Strategy: NZD dips with NZD yield

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Barclays PDF

HSBC Asian FX

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HSBC Asian FX 10 April 2015

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