Currencies: The JPY is down against all the currencies on a combination of concerns that the BoJ is about to increase its quantitative easing and a resumption of carry trades. The USD is down versus all but the JPY on 1) concerns about US bank policy and 2) carry trade implementation. AUD and NZD led as carry trades were reimplemented on view that Bernanke will keep his job.
DXY. Lower, consolidating above 78. The DXY index (78.071) is down again overnight with the USD down against all the major currencies but the JPY. Obama’s proposal to rein in banks stopped the USD rally dead in its tracks despite equities continuing to fall. Resistance for the index lies at 78.814 (Jan21 high) and 79.514 (Aug high). Support lies at 78.026 (Jan25 low), 76.601 (Jan13 low), 74.17 (Nov26 low), 73.158 (Jul’08 high), 71.314 (Jul’08 low), and then 70.698 (Mar’08 low). Over the past two months, DXY has correlated most strongly with gold, with other correlations with other assets distant seconds. The CRB index is still significant, while crude oil, the S&P, and Eurodollar futures are less so.
EUR/USD. Rebounding. EUR/USD (1.4181) is up overnight, as Obama’s bank policy outweighs problems in Greece. Support for EUR/USD lies at 1.4029 (Jan21 low) and 1.4000 (psychological). Resistance lies at 1.4579 (Jan13 high) and 1.4626 (Nov low). EUR/USD’s short-term correlations with other assets has deteriorated sharply, leaving none very significant. This derives from the increased impact of sovereign events and policies over macroeconomics.
GBP/USD. Rebounding within slight downtrend. Cable (1.6166) is up overnight although still within the downtrend since mid-Jan. Technical Resistance lies at 1.6458 (Jan19 high),1.6479 (61.8% retracement of Nov to Dec decline), 1.6722 (Dec 3 high), 1.6878 (Nov16 high) and 1.7043 (Aug high). Support lies at 1.6078 (Jan22 low), 1.5833 (Dec30 low) and then 1.5708 (Oct low). The strongest correlates over the past two months for GBP/USD have been the DXY (negative) and EUR/USD (positive). The S&P (positive) is less significant.
USD/JPY. Downtrend continues. USD/JPY (90.26) is up overnight, but price action remains within the downtrend since early Jan, and the slow stochastics continue lower. Support lies at 89.79 (Jan22 low) and then 88.00 (psychological and held in Oct), Resistance lies at 91.88 (Jan21 high) and 93.77 (Jan8 high). The correlation of USD/JPY with the USD index, US 10yr yield and the US-JP 10yr spread remain significant.
USD/CAD. Stalling above 1.05. USD/CAD (1.0562) is down overnight, retracing a bit after rising for four consecutive rising days. The slow stochastics have crossed higher, suggesting further upside momentum, but the cross might rest around the psychologically important 1.05 level as it digests developments in China, Europe and the US. Resistance lies at 1.0603 (Jan22 high), 1.0749 (Nov27 high), 1.0870 (Nov2 high), 1.0959 (Oct high), 1.0993 (Sep high), and then 1.10 (psychological). Support lies at 1.0225 (Jan14 low), 1.0207 (Oct low), and 1.00 (psychological). In terms of other assets correlating with USD/CAD, watch the SPX and DXY. CRB and crude oil are also significant.
AUD/USD. Holding above 0.90. AUD/USD (0.9065) is up overnight, with the warned of correction stopped dead by market reaction to Obama’s banking announcement and further damped by upbeat news that Bernanke would likely be reappointed. Technical support lies at 0.8983 (Jan22 low), 0.8735 (Dec23 low) and then 0.8500 (psychological). Resistance for AUD/USD exists at 0.9406 (Nov16 high) and then 0.9476 (Jul’08 low). AUD/USD has correlated most strongly with gold (positive), equities (S&P500, positive), and commodities (CRB, positive).
NZD/USD. Holding above 0.71. NZD/USD (0.7142) is up overnight after four consecutive days of losses. The cross appears willing to hold at / above 0.71. Support lies at 0.7092 (Jan25 low), 0.6975 (Dec23 low) and 0.6897 (Aug high). Resistance lies at 0.7442 (Jan14 high), 0.7500 (psychological) and 0.7635 (Oct21 high). The strongest correlates for NZD/USD during the past two months have been AUD/USD (positive), the USD index (negative), and stocks (S&P500, positive). Commodities (CRB index, positive) are now only modestly significant.
