FXS: Dollar up on position squaring and profit taking
Currencies: Dollar up on position squaring and profit taking. GBP underperformed on anticipation of QEII and budget cuts.
EUR/USD. Can’t Hold 1.40
EUR/USD (1.3936) is up overnight but looks to be consolidating just below 1.40. Worries about strikes and unrest in France and Italy, along with extreme positioning, are weighing on the EUR and temporarily offsetting the ongoing pressures on the USD.
Support / Resistance Levels: Support for EUR/USD lies at 1.2588 (Aug24 low), 1.2152 (Jun 29 low), 1.1877 (Jun7 low), 1.1827 (Mar’06 low), and 1.1640 (Nov’05 low). Resistance lies at 1.4159 (Oct15 high), 1.4026 (Feb3 high), 1.4194 (Jan25 high), 1.4579 (Jan13 high) and 1.4626 (Nov low).
Positioning:
The CFTC net, non-commercial position rose further to +39.0K. The position marks a high since Oct’09, and the extreme relative to the past six months suggests a heightened potential for a top in spot.
The risk reversal (3m, 25delta) ticked up overnight with the move in spot. However, the extreme skew at the top of its six-month range suggests the rally might be in danger of reversing.
Implied Vol (3m) slipped overnight but lies in the lower 3rd of its six-month range.
Cross-asset valuation: The only significant correlation that EUR/USD has exhibited during the past 60 days is with the SPX (positive).
GBP/USD. Failing At 1.60
Cable (1.5796) is lower and is failing at 1.60 after trading a high since Jan on Friday. The currency is being weighed by austerity and QEII fears, and extreme positioning is making gains even harder.
Support/Resistance Levels: Resistance lies at 1.6107 (Oct15 high), 1.6284 (Jan22 high), 1.6458 (Jan19 high), 1.6722 (Dec 3 high), 1.6878 (Nov16 high) and 1.7043 (Aug high). Support lies at 1.5755 (Oct12 low), 1.5327 (Aug31 low), 1.50 (psychological), 1.4949 (Jun12 low), 1.4239 (May19 low) and 1.3503 (Jan’09 low).
Positioning:
The CFTC, non-commercial position slipped to +8.4K. The position slipping from a multi-year high suggests an increased potential for a top in spot.
The risk reversal (3m, 25delta) rose overnight despite the move in spot. The recent stall at the top of the six-month range suggests a potential top in GBP/USD.
Implied Vol (3mo) stabilized overnight and remains near the low of its six-month range, suggesting the potential for a reversal in the direction of spot.
Cross-asset valuation: The significant correlates over the past two months for GBP/USD have been the DXY (negative) and EUR/USD (positive).
USD/CHF. Holding Above Record Low
USD/CHF (0.9627) is up overnight and holding above Friday’s record low. It’s too early to suggest a trend rebound is developing.
Support/Resistance levels: Resistance lies at 1.0641 (Jul27 high), 1.0676 (Jul12 high) and 1.1742 (Apr’09 high), while support lies at 0.9463 (Oct14 low).
Positioning:
The CFTC non-commercial position slipped to 19.3K. The position slipping from the six-month high suggests that the decline in USD/CHF is overstretched.
The risk reversal (3m, 25delta) fell overnight despite the move in spot. The stall at an extremely low skew is supportive of a correction higher in spot.
Implied Vol (3mo) fell overnight in the middle-3rd of its six-month range.
Cross-asset valuation: USD/CHF has correlated mostly strongly during the past 60 days with EUR/USD (negative) the USD index (positive), gold (negative) and the US 10yr yield (positive).
USD/CAD. Rebound Continues
USD/CAD (1.0217) is higher overnight, rejecting the breach below parity made Thursday and holding above 1.02.
The CFTC non-commercial position rose to+42.5K, around the middle of its six-month range, thus providing little indication of the future direction for spot.
The risk reversal (3m, 25delta) rose overnight with the move in spot. The skew is correcting from a six-month low, suggesting an increased potential for a bottom in spot and move higher in spot.
Implied Vol (3m) fell overnight and remains towards the bottom of the six-month range.
Cross-asset valuation: In terms of other assets correlating with USD/CAD, watch the SPX (negative), CRB (negative), crude oil (negative), the DXY (positive) and the 2yr spread (negative).
USD/JPY. Consolidating Above Post-’95 Low
USD/JPY (81.51) is up overnight – the first up day in four. Spot appears to be consolidating just above the recent post-’95 low.
Support/Resistance Levels: Support lies at 80.88 (Oct15 low) and 79.75 (Apr 1995 record low). Resistance lies at 85.93 (Sep16,17 high), 88.12 (Jul28), 89.16 (Jul12 high), 92.89 (Jun4 high) and 94.99 (May4,5 high).
Positioning:
The CFTC non-commercial net position slipped to 45.9K, and the high net long position relative to the past six months suggests a heightened potential for a bottom in USD/JPY.
The risk reversal (3m, 25delta) rose overnight with the move in spot. The skew remains in favor of USD/JPY downside, but continues to trend higher (despite the recent slippage) into the top ˝ of its range the past six months, supporting a move higher in spot.
Implied vol (3m): fell overnight, and it remains in the bottom of its 6-month range.
Cross-asset valuation: The correlations of USD/JPY with the US 10yr yield (positive) and the US-JGB 10yr spread (positive) are significant.
AUD/USD. Failing At Parity
AUD/USD (0.9826) is lower overnight for the 3rd consecutive session and looks to be failing at parity. The currency did receive support from last night’s RBA minutes (finely balanced decision to keep rate steady), but a Nov hike is already expected.
Support/Resistance: Technical support lies at 0.8771 (Aug25 low), 0.8634 (Jul19 low), 0.8316 (Jul1 low), 0.8067 (May25 low) and 0.7704 (Jul’09 low). Resistance for AUD/USD exists at 1.0004 (Oct15 high), 1.00 (psychological), and 1.0056 (Dec’76 low).
Positioning:
The CFTC non-commercial net position fell to 67.7K. It lies in the top 1/3 of the six-month range, suggesting increased potential for a correction lower in spot.
The risk reversal (3m, 25delta) stabilized overnight despite the move in spot. The reversal failing at the top of the six-month range warns of a correction.
Implied Vol (3m) fell overnight, but it remains in the uptrend it has been forming from the lower 1/3 of its six-month range.
Cross-asset valuations: AUD/USD has correlated most strongly with equities (S&P500, positive), commodities (CRB, positive) and the DXY (negative.)
NZD/USD. Failing At New High Since ‘08
NZD/USD (0.7519) is lower overnight for 3rd consecutive session and looks to be falling from the high since Jul’08 traded last week.
Support/Resistance: Resistance lies at 0.7644 (Oct14 high) and 0.8214 (Feb’08). Support lies at 0.6948 (Aug 25 low), 0.6795 (Jul1 low) and 0.6561 (May25 low).
Positioning:
The CFTC non-commercial position rose slightly to 16.6K. The position near the top of the six-month range warns of a potential top in spot.
The risk reversal (3m, 25delta) rose overnight despite the move in spot. The stall in the skew near the top of its six-month trading range warns of a potential top in spot.
Implied Vol (3m) fell overnight and remains in the lower 1/3 of its six-month range, warning of a potential for a trend reversal in spot.
Cross-asset valuations: The strongest correlates for NZD/USD during the past two months have been AUD/USD (positive), stocks (S&P500, positive), the DXY (negative) and commodities (CRB index, positive).
