Morning Report: China Move Sparks Overnight Volatility

Market Commentary  

 

It’s all about China today, with the PBOC significantly adjusting its benchmark fx rate during the Asian session.This has caused the USD to shoot up across the board, and USDJPY benefited (at a much lesser extent), printing a high of 125.05. Interbank reports suggest market owns a lot of gamma in the short term, and hence barring a sharp move in equities or fixed income, it doesn’t seem the pair will run away on either direction although the market bias remains to buy on dips,

EURJPY’s starting to show some bullish signals breaking the trendline resistance from early June and closing above the 200 day simple moving average. With Greece closing in on its 3rd bailout deal, the cross may continue to outperform towards 138 initially. 136.70/60 the support to lean on. Flexibility is advised however, as developments in China could lead to pockets of illiquidity.

It was a volatile ride with dollar under pressure yesterday after Fed’s Fisher mentioned that there will be no rate hike until Fed sees inflation returning to normal and Fed’s Lockhart maintaining the same tone as last week failed to provide support for the dollar. EURUSD hit a high of 1.1042 overnight before turning and hit a low of 1.0955 this morning post the Chinese fx move.

BOE’s David Miles’ hawkish statements coupled with a broad USD selloff saw GBP rebound significantly to a high of 1.5606 yesterday. Miles’ comments will likely be the catalyst for follow through on yesterdays move however, given that he is in the final days of his post in the MPC and his comments are in line with his recent hawkish comments a few weeks ago. Tomorrow’s employment figures should be more key for the currency, especially after the optimistic view of the committee regarding this sector of the economy

Technical  Commentary 

EURUSD Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks) Bearish

  • While 1.0940 supports intraday downside reactions expect retest and break of 1.1040/60 to return to range trade a break and close above 1.11 threatens  another attempt at 1.12 below 1.09 open retest of 1.08.
  • Daily Order Flow bullish; OBV sideways to down, Linear Regression and Psychology bullish but lack momentum
  • Monitoring intraday price and Order Flow indicators on a test of 1.11 or 1.08

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GBPUSD: Short Term (1-3 Days): Bearish  – Medium Term (1-3 Weeks) Bearish

  • While 1.55/15480 support intraday downside reactions expect retest and break of 1.56 en route for another assault of 1.57 offers, below 1.5460 open retest of bids towards pivotal 1.54 failure opens 1.5285
  • Daily Order Flow bearish; OBV down, Linear Regression and Psychology bearish
  • Monitoring intraday price action and Order Flow indicators on a test of 1.5285 or 1.5750

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USDJPY: Short Term (1-3 Days): Bullish  – Medium Term (1-3 Weeks) Bullish

  • Bulls target 125.85 and 128 in extension, intraday downside reactions remain supported towards 123 only a failure at pivotal 122.50 concerns medium term bullish view
  • Daily Order Flow bullish; OBV sideways to up, Linear Regression and Psychology testing midpoints from above
  • Monitoring intraday price action and Order Flow indicators on a test of 125.85 or 123

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EURJPY: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks) Bearish

  • While 136.00/20 caps intraday downside reactions bulls target a retest of 138 ahead of the initial symmetry objective at 141
  • Daily Order Flow bullish; OBV sideways to down, Linear Regression and Psychology pierce midpoints from below.
  • Monitoring intraday price action and Order Flow indicators at 138 and 133

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