Euro is retreating with a corrective start for the USD and gold is positioning above 1215
The Euro’s reversal extended as fresh selling from speculative longs accelerated its fall. Asian Emerging Market currencies slumped following a warning from Korean authorities that they would take action to stem one-sided moves in the currency, according to a Bloomberg report.
Data releases from Europe and Germany were mixed.
Outlook: The accelerated fall in the Euro enabled the Dollar Index (USD/DXY) to rally off its base which looks set to continue. Traders shrugged off the data which was, for the most part, mixed.
A rise in Euro Zone Retail Sales was offset by a fall in German Factory Orders.
We highlighted yesterday that speculators raised their net short Dollar bets in the last two weeks of December. Most of this was through Euro long bets. The risk is for a more meaningful correction.
The warning by Korean authorities to take action to stem any one-sided moves is significant. This was the result of the Korean Won’s massive rise against the US Dollar since October. And has implications for the Asian Currencies and ultimately the Dollar.
Trading View: The combination of the Euro’s sell-off and the slump in Asian EM currencies signal further upside correction for the Dollar. Fed Speak yesterday confirmed that most policymakers favor 3 rate hikes next year. European politics is far from settled and at some stage will get attention. This favors a further, perhaps more meaningful Dollar correction.
USD/KRW jumped from 1060 to 1068 in minutes following the warning from Korean authorities.
This is significant because it probably signals the thoughts of other Asian authorities. The US Dollar has fallen too fast, too quickly against most currencies.
It’s not surprising that the US Dollar had impressive advances against the Singapore Dollar, Chinese Yuan, South African Rand, Philippine Peso and others. As has been my experience from years of trading EM currencies in the past, the Asian EM currencies can lead the Majors.
EUR/USD – fell 0.5%, the most in 6 weeks to an overnight low of 1.19558. EUR/USD closed slightly higher at 1.1963 (1.2030 yesterday). The breakthrough strong support at 1.20 saw selling accelerate past 1.1980, the next support. Immediate resistance now lies at 1.1980 and 1.2000. Immediate support can be found at 1.1950 and then 1.1920. The main factor for the Euro’s fall was a capitulation of some of the net long Euro bets, the total of which is the highest since 2008. German Industrial Production and Trade Balance is out today. Likely range today 1.1940-1.1980. Sell rallies.
AUD/USD – failed once again to rally and sustain itself above 0.7875, instead of falling to close at 0.7840 (0.7865 yesterday). The Aussie took the lead from the fall in the Euro and Asian currencies. Today sees the release of Australia’s ANZ Job Ads and Building Approvals. November Building Approvals are expected to fall following a slowdown in construction and housing. AUD/USD has immediate support at 0.7820 and then 0.78 cents. Immediate resistance lies at 0.7870. Expect the Aussie to grind lower in this environment with the likely range 0.7810-0.7860. Prefer to sell rallies.
GBP/USD – little-changed after a May government cabinet reshuffle. While the move took away some of the political uncertainty that has weighed on the Pound, UK Halifax House Price Index missed expectations and Sterling moved ended little-changed. Sterling has immediate resistance at 1.3570 and then 1.3590/00. Immediate support can be found at 1.3520/30. The latest CFTC/Reuters report saw a slight rise in speculative GBP long bets to +GBP 16,235 contracts from +GBP 12,676. Further US Dollar strength will eventually weigh on the Pound. Likely range 1.3520-1.3570. Sell rallies as the speculative community is long.
USD/JPY – trading was quiet yesterday with Tokyo on holiday (Coming of Age Day). USD/JPY traded to a high of 113.387 before closing at 113.10. With both US and Japanese ten-year yields flat, we should see similar trade today. Immediate resistance lies at 113.30/40. Immediate support can be found at 112.90 (overnight low was 112.88). Unlike the Euro, the net speculative community is currently short JPY bets (long US Dollars). Today’s likely range 112.90-113.40. Trade the range.
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***Information contained in this newsletter are gathered from third parties and should not be regarded in any way as trade advice or recommendations by CM Trading. CM Trading does not recommend or advise traders or investors in their decision making but merely provides information from the market for its clients as additional information is made available as per the events occurring in the financial markets.
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