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FAROS TRADING | FX MORNING UPDATE
Market Summary – 08/26/2010
Good Morning.
Please see our new attachment of “Trade Recommendations”
for your guide. Although we do not make explicit currency
forecasts at Faros, we do highlight themes that we see occurring
in the markets and those currencies that are likely to benefit.
Relatively quiet session in Asia with a mild bias towards ‘risk on’
on the back of the positive equity market close in the US.
Regional equities were mixed with Taiwan and Korea negative
and the remainder generally positive to unch.
We heard of Japanese investors buying USD/JPY at the Tokyo fix
with exporters happy to sell, but the range was relatively
confined at 84.50/84.85 and we are trading through the lows as
we walk in this morning on comments from Eurozone ‘sources’
on Reuters which mentioned that ‘joint intervention on JPY
unlikely, BoJ would need to act alone’, ‘lots of jitters in Japan
about JPY rise, but not in US and Eurozone’.
Commodity currencies recovered on the back of USD weakness
and equity strength as markets focused on a DJ newswire
interview of S&P’s sovereign rating agency chief who indicated
that the US needs to address its ballooning budget deficit to
protect is AAA credit rating.
AUD/USD rallied through 0.8890 from 0.8840 and we are 0.8880
now. The 50 day remains support at 0.8850 and then the 100
day at 0.8830 with resistance above at the 200 day at 0.8944.
NZD/USD rallied back through 0.7000 to trade close to 0.7060
and we are 0.7040. The 100 day at 0.7061 is capping the rally
for now. NZD/JPY remains below the 60.00 level for now.
We heard about the Bank of Thailand remaining firmly on the
bid at 31.45 overnight.
USD/KRW saw exporters and models selling from 1196 down
and there was talk of the Bank of Korea on the bid as support
but that was unconfirmed. The remainder of NJA was mildly
better bid as well with PHP, INR, TWD all rallying and IDR the
outlier with USD/IDR drifting back to 9000.
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The EUR/USD grabbed attention on the trigger of stops through
1.2730 but we failed to take out 1.2740 and the market has
drifted back through 1.2700 now. German GfK slightly higher
and the US credit rating story were sighted. Also talk of the
Greeks letting the short sale ban expire were noted as well as
EUR positive as well as the Irish tirade against the recent credit
rating downgrade. A close below 1.2730 keeps the bearish
angle intact but a close above 1.2730 will have some looking for
a test higher.
One bank we speak to, did a study of EUR/USD correlation to
spreads in Germany within Europe indicating a very high
correlation 0.76, as spreads widen, EUR/USD falls. Based upon
their analysis and current spreads they argue for EUR/USD
1.2200. This ties out with what many technical analysts across
the street are saying but we caution that Asian central banks
remain on the bid with the SNB seemingly on the offer.
GBP/USD jumped up to 1.5590 on the back of the EUR/USD
move and we drifted back to 1.5520 now after closing NY at
1.5450. The 200 day at 1.5458 is providing support right now
with 1.5382 the 50 day holding previously.
Norway’s likely central bank successor indicated that tightening
should be at least a year away. NOK failed to move much on
the comments and PMI remains above 50 while industrial
production shows signs of contraction and CPI remains firmly
around 2%.
CHF/HUF made fresh all time highs yesterday, trading just shy
of 220.00 and we dropped down to 215.00 at one stage before
recovering back to 217.50.
The failure of USD/TRY at the 50 and 100 previously at
1.5334/69 area led to a test down to 1.5227 the 200 day and
we are 1.5245 now. A break of the 200 day opens a move to
1.5000.
USD/MXN closed below 13.0000 as we hear of macro sellers
above and we look poised to open 12.9600 now.
Good Luck