Midday Forex Report: Risk Correlations Realign

Market Commentary

USD trades just below levels last seen prior to the late August breakdown driven by China’s Yuan devaluation. The USD has regained its mantle as the safe haven for capital flows. This correlation broke down in August as US monetary policy took the brunt of the repricing in rate move expectations, this baton is now being passed to other central banks namely the BOE, ECB and BOJ, as such pre August crash risk correlations are being restored.

EURUSD is rotating higher from session lows just below 1.11 in early European action. Traders are likely squaring some risk ahead of the headline event of the day with ECB President Draghi due to speak this afternoon. Interbank reports suggest many have been forced to chase this move lower with no meaningful bounce to position in to. This chasing may see some poorly positioned and fuel short covering ahead of Draghi’s speech.

GBPUSD trading was almost a carbon copy of yesterdays early European moves. Price action broke Asian lows then rotated higher but the relief bounce was used by London trading desks as a chance to get back on the offer, subsequently driving cable to new lows below 1.53 heading into the U.S open.

USDJPY rotated lower ahead of the European open driven by weaker China flash PMI released overnight. The pair has regained its footing and has drifted higher in line with broader risk sentiment. It is note worthy that the Nikkei comes back on line tonight after an extended holiday and may have some catch up to play in light of moves seen in western markets since Monday.

Technical Commentary

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

Intraday resistance now sighted towards 1.1175 while 1.12 offers cap upside reactions expect a rotation back towards sub 1.11 bids ahead of the pivotal 1.1050 level

Daily Order Flow bearish; OBV sideways to up, Linear Regression and Psychology bearish but lacking downside momentum

Monitoring intraday price and Order Flow indicators on a test of 1.1050 or 1.12

euny2015-09-23 12_10_49-

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

Now trading sub 1.53 support while 1.5350 acts as resistance expect a move back to test bids towards September lows in the 1.5150’s

Daily Order Flow bullish; OBV down, Linear Regression and Psychology rejected at midpoint test from below

Monitoring intraday price action and Order Flow indicators on a test of 1.52 or 1.5350

guny2015-09-23 12_13_25-

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

Range trade persists with domestic markets closed. While bids towards 1119.50 continue to support the price action expect a rotation back towards the 121.50 range resistance

Daily Order Flow bearish; OBV sideways to up, Linear Regression and Psychology rotating around midpoints

Monitoring intraday price action and Order Flow indicators on a test of 119 or 122

ujny2015-09-23 12_16_13-

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

Expected rotation back to test 132 attracts buyers on the initial test. While 132 supports there is potential to retest 135 offers, failure at 132 solidifies bearish tone and targets 2015 lows next

Daily Order Flow bullish; OBV sideways to up, Linear Regression and Psychology pierce midpoints from above

Monitoring intraday price action and Order Flow indicators at 135 or 132

eyny2015-09-23 12_28_33-