If You’re Long The Dollar, Do This
Just
like death and taxes, we can always count on the BoJ to threaten or
carry carry out FX intervention. Last night, Japanese Finance Minister Tanigaki
stated once again, “We are ready to take appropriate action if foreign
exchange rates start to move in a manner which doesn’t reflect fundamentals.”Â
It would seem, based on recent comments, where there were none just a few
weeks ago, that the 105 level is where major exporters would likely be
negatively impacted. Higher oil prices are also part of the reasoning behind
his statement, although with the drop in the last two days to under $50 bbl,
perhaps this will take some pressure off. With mostly negative data surprises
out of Japan, rather sluggish equity inflows and stagnating export growth, the
Yen managed a sizable rally, accompanied by a rather sudden increase in Yen
bullishness. With this backdrop and the decision on the election upon us, it
does not seem like the right time to be a Yen bull. While this is not a
recommendation to go long the dollar vs. yen, if you are short at present
levels, taking some money off the table is prudent.
While the story on the Yen is
not particularly new, it does shed light on the recent moves lower in the dollar
in general. It appears that negative dollar sentiment is at an extreme, and
risk reversals are far more likely. Yesterday’s worse-than-expected ISM data
saw the dollar rally, and with a large speculative position in the dollar
currently, the election and payroll data on Friday, the risk is for dollar
strength.
Technical Notes:
EUR/USD:Â waning upside
momentum on daily chart indicates consolidation or a deeper pull-back towards
1.2610. Short-term models show potential short opportunities into the 1.2743
level with downside targets of 1.2680.
GBP/USD:Â similar pattern here,
while the short-term model is looking somewhat bullish, the underlying structure
of the move is questionable, 1.8390 should cap this recent move higher. Targets
going forward still show that 1.8477 will be the key resistance level.
USD/CHF:Â speculative long
positions in this pair do have a favorable risk/reward at present. Daily chart
showing signs of non-confirmation on recent low and momentum beginning to gather
to the upside. Downside risk is limited to recent low (about 120 pips away from
current price), with upside targets easily overcoming the stop loss.
AUD/USD:Â the Aussie dollar is
having a tough time hanging on to the recent gains. The .7500 level is once
again proving to be a solid barrier with many option related sellers offering.Â
Technicals on daily chart are beginning to wane and short-term model has no
clear price structure.
NZD/USD:Â despite the obvious
change in monetary policy last week, the recent pullback in NZD looks to offer a
potential long entry. The .6800-.6820 level has held well in recent sessions
and the 50-day ema at .6730 offers further support. The trade is not fully
set-up yet, but upside targets are seen at .7100.
EUR/AUD:Â possible short seen
on daily chart, although 1.6940 will be a barrier to lower levels at present.
As always, feel free to send me
your comments and questions.