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Forex Trading StrategiesUSD, JPY and AUD continue to crumble vs. the Europeans. 1.2380 may be temporary stopping point for EUR/USD
Canada well get a Conservative minority-led government after national elections yesterday. BOC rate decision tomorrow.
MAJOR HEADLINES – PREVIOUS SESSION
• US December Leading Indicators out at 0.1% vs. 0.2% expected
• US Interest rates eased lower after the release of the Leading Indicators data for December out at +0.1% vs. +0.2% expected
• The results of the Canadian elections show Harper's conservatives gaining the victory - though he will lead a minority Conservative government
• Japan Supermarket Sales rose 1.8% in December on a year-on-year basis vs. -0.4% in November
• Japan Nationwide Department Store Sales rose +0.9% in December on a year-on-year basis vs. +3.2% in November
• Saudi Arabia stepped in with assuring rhetoric for energy markets, which eased back after the recent runup to near record prices
EUR/USD was as high as 1.2320 overnight before easing back and EUR/JPY bolted all the way to 141.05 - the highest level of the year.
THEMES TO WATCH – UPCOMING SESSION
We're seeing further moves weaker in the USD overnight - this time aided by a weak JPY as EUR/JPY spilled over the resistance to a new six-week high, pushing EUR/USD all the way to 1.2320. We see absolutely nothing on the radar to stop this development - as US treasuries corrected higher yesterday on the flimsy reason of a slightly worse than expected Leading Indicators (probably the single most uninteresting economic number of them all....).
It's impressive to still see the USD under pressure despite reasonable relief in the stock market and energy markets yesterday. We look for a possible, technical pause around the 1.2380 level for EUR/USD, but then we look higher to 1.2550 as the next major target, abandoning the lower end of earlier projections for this rally as the action here makes the target more aggressive. If the risk aversion theme kicks back into gear after some kind of relief in the stock market, then USD/CHF may be the best way to play the USD downside.
USD/CAD consolidated a bit higher - but not as much as we would have expected. The upside may fade soon there (1.1560 and max 1.1620) and we'll have to see if the CAD bulls can take the pair to new lows below 1.1430. The BOC rate decision and statement will receive considerable attention today.
USD/JPY looks indecisive as the focus has been on the weak JPY in the crosses and the break of 140.80 in EUR/JPY. But USD/JPY's days in ths narrow 114.20/80 range are numbered - and we prefer a downside resolution there.
GBP faces a key test in the crosses (vs. EUR and CHF) over the coming couple of days with the CBI Industrial Trends respot today at 11:00 GMT and especially the BOE Minutes tomorrow. Recently, the market was pricing in a high probability of a rate cut from the BOE, but this has been unwound recently as the market looks for a more stable view again. This sets up a possible "big surprise" scenario if the CBI report is negative and the BOE proves more dovish than anticipated. GBP/CHF lower may be the way to play this if we hit the surprise scenario - consider three-day options if you don't want to trade spot.
Note: the support/resistance levels used in the matrix’s of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.
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