These Currencies Are Looking Better
Macro
Notes:
With
range-bound markets on both short and longer-term models, traders are forced to
be nimble or simply wait and anticipate the next leg of a move.
Macro/Fundamental traders continue to be perplexed by the continued
deterioration in the current account deficit despite a 10%
plus net depreciation in the broad
trade-weighted USD since early 2002.
At the same
time, from a cyclical perspective, we are watching the continued retreat in U.S.
long-end yields, with the 10-year yield now below 4.15% once again and only
about 6 bp above its pre-employment report lows despite yesterday’s solid
ex-autos retail sales reading. Both themes should be consistent with the USD
exploring the lower end of its recent range in the relatively near-tem.
‘Should’ is
the operative word from the sentence above, regardless of the data the dollar is
simply maintaining ground. As Martin Barnes of The Bank Credit Analyst remarked
at a recent conference I attended,
“Who is to say what levels of
trade deficits and debt the economy/the dollar can endure, we simply have no
statistical evidence that this data, simply because it has reading higher than
anything previous poses an immediate threat. The same fear-mongering was common
in the 1950’s yet the world continued to move forward.â€
Perhaps the data will
ultimately lead to a move lower in the dollar and a re-adjustment of trade
deficits. In the meantime, we simply need to make note of the seemingly
deteriorating picture but trade what is actually unfolding.
The theme,
for now at least, continues to be the NZD and AUD. As 10-year Treasury yields
continue lower, the quest for yield continues. Technically, both of these
currencies are looking better, with the AUD needing to
take out the 50-day ema in order to ensure further upside.
Tomorrow’s
TIC data should shed some light for traders as to the immediate direction of the
dollar. Recent data shows quality of investment flows to the US has
deteriorated.
Technical Notes:
EUR/USD:
sideways action on short-term models forces us to sidelines on this one. Major
news or technical break required in order to establish positions.
GBP/USD:
daily model has broke below support again at 1.7890, however a move past the
September wave low at 1.7710 is needed to invite further downside. Short-term
model is getting a bit oversold after the data at 5:30 am PDT, but we cannot
rule out a move towards 1.7770 or 1.7800
AUD/USD:
this is one of our areas of focus presently as technical and macro backdrop
appear to be accommodating. .7048 needs to be taken out with .6954 offering
short-term support. Short-term up-trend has been broken so expect some backing
and filling before a possible move higher.
NZD/USD:
same situation here as in AUD. Risk aversion is moving lower, and NZD stands to
benefit. Daily model looks solid but .6639 will need to be re-tested.
Short-term up-trend has been breached; so expect some corrective price action.
As always,
feel free to send me your comments and questions.