Morning Report: Volatility Returns As Risk Is Pared

KEY DATA RELEASES TODAY:

0930GMT GBP Trade Balance exp -9.5B v -9.8B
1530GMT USD Crude Oil Inventories exp -2.6M v-3.7M

OVERNIGHT:

USDJPY remains under pressure, consolidating around 119 after yesterday’s sharp drop to the 118 handle on risk aversion as global equities were pressured by the sell-off in China and Greece. Today’s session is somewhat more benign, with the Shanghai A-shares up over 2%, despite China CPI slowing to a 5-year low of 1.4% and PPI fell by the biggest y/y rate in 18 months to -2.7%.

Elsewhere, gold is also consolidating around 1235 following yesterday’s $30 rally while US 30yr yields remain under pressure sub-2.88. Australia Westpac consumer sentiment dropped sharply by -5.7% mom in December to its lowest level in over 3 years. This saw AUDUSD fall to session lows below 0.8270 after the China print before buyers emerged.

What a difference a couple of days make in world markets. The landscape looked clear and safe following the strong US non-farm payroll data on Friday. Risk assets looked as safe as houses, volatility was at multi-month lows and even beaten down commodities started to look appealing if the US economy was going to bounce back in 2015, as the job numbers suggested.

Probably the surest bet emerging from the US payroll data was that US yields would climb along with the USD as the Fed would most definitely start prepping the markets for the commencement of the tightening cycle around mid-2015. The past two trading sessions have seen equity markets selloff and recover, volatility surge, oil prices and key commodities collapse and recover; long dated Treasury yields fall and the USD get hit.

The last couple of days has been a reminder that volatility can show up at anytime and there is no such thing as a one-way bet especially as we approach the end of year period and players start to pare positions and lock in profits.

Looking ahead, there’s very little on the data front except UK trade balance, hence markets will likely continue to take their lead of equities and general risk sentiment.

OVERNIGHT PRICE ACTION:

EUR: Descending trend line supports retesting trendline resistance in potential wedge.
GBP: Snap back to range, trendline resistance eyed
JPY: Ascending trendline resistance rejects sharply, horizontal supports holds on first test
CAD: Pierces double top resistance no follow through for now
AUD: Pause in the decline but the psychological .80 still eyed

KEY TRADES:

FX PairShort TermPosition/DateEntry LevelTargetStopComments
EURUSDNeutralAwait new signal
GBPUSDNeutralAwait new signal
USDJPYNeutralAwait new signal
USDCADBullishBUY 9th DEC1.1495 OPEN 1.1345
AUDUSDBearishAwait new signal

ANALYSIS:

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

  • Price holds descending trendline support and is now testing trendline resistance in a potential wedge pattern
  • Order Flow indicators; OBV ticking up from lower levels, Linear Regression and Psychology attempting break midpoints from below
  • Watching for a break of trendline resistance for long positions

eu2014-12-10 07_28_41-

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

  • As anticipated snap back into range from lower end trendline resistance eyed
  • Order Flow indicators; OBV ticking up, Linear Regression and Psychology pierce midpoints from below
  • Watching for trend line resistance break and retest to enter new positions

gu2014-12-10 07_29_32-

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

  • Ascending trendline resistance rejects testing primary horizontal support
  • Order Flow indicators; OBV bullish but retreating form recent extremes, Linear Regression and Psychology pierce midpoints form above
  • Watching for previous resistance to act as support to set new longs

uj2014-12-10 07_31_43-

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

  • Price pierced year to date highs but no follow through
  • Daily Order Flow indicators; OBV bullish no new highs, ticking down, Linear Regression rolling over and Psychology to retest midpoint from above
  • Long orders in play, please see key trades

uc2014-12-10 07_56_40-

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

  • Pause in decline, trendline and horizontal resistance eyed
  • Order Flow indicators; OBV continues ticking lower, Linear Regression and Psychology bearish, continuing to test lower level support areas
  • Monitoring trendline resistance and previous spike lows to set new shorts

au2014-12-10 08_16_15-

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