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Daily FX Summary: October 26

Tyler Durden's picture




 

Courtesy of Talking Forex

EUR/USD 
 
EUR posted broad based losses on Tuesday amid a stronger USD and following news that Citigroup has advised its clients to take profits on long EUR/USD positions. As a result, the pair fell below the 10DMA (1.3935), the 21DMA (1.3862) and looks set to make a test on 1.3800 in the coming days. The anti-EUR sentiment was also in part blamed on reports by Greek newspaper Kathimerini which noted that delays in the collection of taxes in Greece may cause a EUR 900mln shortfall, while the infamous El-Erian of Pimco said that he sees the country defaulting within three years. In turn, yield spreads between the Greek 10y govt bond vs. German bunds widened and sparked fresh fears about the debt issues by other peripheral states. Note that Wednesday sees Portugal attempt to sell Oct-14 and Jun-18 bonds and should the demand disappoint, further EUR weakness should not come as a surprise. In terms of technical levels, to the downside the pair is faced with a major support at the 50.0% Fibonacci retracement level at 1.3511. But before that, 1.3840/00 and 1.3750 levels are expected to slow the descent.
 
GBP/USD
 
Despite a stronger USD, the pair rallied and posted gains of over 100pips on Tuesday after the UK's Q3 advanced GDP data beat expectations by a impressive margin and S&P revised the UK's sovereign rating outlook to stable from negative, affirming the country's 'AAA' rating, having been satisfied with the coalition governments performance and budget plans outlined thus far. As a result, the pair staged a convincing rally and broke above 1.5800, the 10DMA (1.5828), the 21DMA (1.5836) and given the underlying strength in the data, the pair may make another attempt on surpassing 1.6000 in the coming days. Tuesday's first reading of UK GDP data has prompted the trading community to speculate whether the BoE will be forced to delay the resumption to its Asset Purchase Facility (AFP) in November. So much so that JP Morgan suggested that the BoE may remain on the sidelines and only announce another round of asset purchases in February. However there are plenty of reasons to call Tuesday's rally a so called "dead-cat bounce". That is partly because the majority of the forward looking indicators are pointing to a slowdown and there is a clear lack of credit growth, which is particularly worrying for the BoE. Nevertheless, renewed Eurozone sovereign related concerns may benefit GBP in the near-term, largely due to the fact that the currency tends to be traded as a EUR-hedge. In terms of technical levels, to the upside, 1.5900 and 1.5950 are seen as near-side resistance levels. While to the downside, 1.5800 and then 1.5750 and among key support levels.
 
USD/JPY
 
The pair rose towards the mid-81.00 levels on Tuesday amid a stronger greenback, which gained following renewed concerns over the Eurozone and on the back of much better than expected UK GDP data which lifted GBP across the board. Despite the recent upside price action, risks are still tilted to the downside and looking forward should the USD weaken in the near-future, which is almost certain if the Fed introduces another round of asset purchases, then another attempt to test the all-time low at 79.75 cannot be ruled out. As such, the probability of official intervention remains elevated, which was reinforced by the Japanese finance minister Noda who said that the BoJ/MoF will take bold action if necessary to stem the JPY's appreciation.

 

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Tue, 10/26/2010 - 18:21 | 678912 JuicyTheAnimal
JuicyTheAnimal's picture

Silver gapped up.  Doesn't seem to care bout FX.

Tue, 10/26/2010 - 19:32 | 679087 Orly
Orly's picture

:D

Tue, 10/26/2010 - 21:24 | 679322 -1Delta
-1Delta's picture

Watching the Aussie tonight... maybe just maybe risk finally off

Tue, 10/26/2010 - 21:55 | 679390 Orly
Orly's picture

Excellent observation, NegOneD...

Limited upside potential with a virtually unlimited floor.  Now, watch as the JPY reacts to the diminished carry...

Tue, 10/26/2010 - 22:15 | 679439 unum mountaineer
unum mountaineer's picture

UK's Q3 advanced GDP data beat expectations by a impressive margin

I'll just say it..(it's late and i'm hittin the konig pretty hard for a tuesday) really now? i hate lookng at gdp numbers for bull shit. i'll call it now and look out later. housing permits? housing has confirmed a dip in prices there. idk, shit seems very bullshit lies and statistic-y..but i'm drunk commenting..wheres captcha when ya need it

Tue, 10/26/2010 - 22:52 | 679565 Orly
Orly's picture

Hang in there, unum.  Once you get past the drunk, you're getting very, very close.

Very close, indeed.

"D

Tue, 10/26/2010 - 22:19 | 679444 firstdivision
firstdivision's picture

Holy crap, the AUDJPY pair are having a domestic dispute.

Tue, 10/26/2010 - 22:53 | 679567 alicea
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Wed, 10/27/2010 - 00:13 | 679703 TexDenim
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Why is the JPY showing more relative strength than the EUR? Are there termites in Europe that we don't know about? Maybe in Portugual or Greece?

Wed, 10/27/2010 - 05:33 | 679923 boogey_bank
boogey_bank's picture

termites are in Germany. they don't want a strong euro.

they (germans politicians) don't care about savers, they care about german exporters.

Wed, 10/27/2010 - 06:18 | 679933 TexDenim
TexDenim's picture

Very good point. Yesterday they were saying it was the Swiss trying to jack up the greenback (on the boob toob). This makes more sense to me. The Swiss are currency neutral.

Wed, 10/27/2010 - 07:30 | 679977 hedgeless_horseman
hedgeless_horseman's picture

Step 1.  Assess

Step 2.  Design

Step 3. Develop

Step 4. Implement

Step 5. Declare a success (only one week later)

Cameron's Budget Gamble Pays Off as U.K. Economy Holds Firm

http://www.bloomberg.com/news/2010-10-26/cameron-s-budget-gamble-pays-off-for-now-as-economy-eases-investor-qualms.html

 “Can you really take out half a million public-sector jobs without that having an effect on the economy?

No.  Shrinking government will always have a positive effect on the economy.

 

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