Quick update on FX positioning

The US dollar remains strong against all the currencies since yesterday, erasing little by little its post-minutes losses. EURUSD is back to 1.2660, the trend looks bearish and we would set our short term target at 1.2600. A bit late for bears (above 1.2750 was a perfect level to short the pair again), but there is little room for the downside. I’d play short EUR/GBP at 0.7900; a GBP strength relative to the Euro is inevitable, long-term bears just have to be patient for the 0.7500 retracement.

AUDUSD is back to 0.8700 (beginning of the week’s level), despite strong employment reports yesterday in Australia, with full time employment up to 21.6K in September (from 14.3 the previous month). We read that global growth worries will continue to weigh on the Aussie (with always the same story with China’s) slowdown, and the market clearly sees an Aussie trading at 80 cents against the greenback sometime in mid-2015. Next support on the downside stands at 0.8650 (we’ll see if it holds this time).

On the Yen side, we clearly think the bearish USDJPY momentum is not over yet and the JPY should continue to strengthen in the short until we see the big buyers-on-dips. The next support on the downside stands at 107.14, which corresponds to the lower band of the Bollinger Band (20,2x), followed by the psychological 107.

Bonus Chart before US opens:

S&P500-Oct10(1)

(Source: Reuters)

Update on Kiwi, RNNZ on hold as expected…

The Kiwi has remained under pressure against the greenback since the middle of July when it flirted with its 3-year resistance at 0.8840. Since then, we saw a lower than expected CPI that printed at 1.6% in Q2 on July 15 (vs 1.8% expected) followed by a dovish stance from RBNZ policymakers on July 24th. Despite the central bank raised its OCR by 25bps for the fourth time this year to 3.5% (in line with investors’ expectations), Governor Wheeler indicated that the central bank was considering a pause in the following meeting after the 1% shift.

Therefore, investors lost interest in the currency (probably some take profits above 0.8800) and the negative trend started. I have remained bearish on the currency since the central bank’s last statement, and we anticipated the NZD to depreciate even more against the USD ahead of the RBNZ meeting (September 10th). As expected, the central bank left rates unchanged yesterday and added that ‘softer inflation might limit the extent of rate hikes’, pushing NZD/USD below the 0.8200 level (trading at 0.8175 as you can see on the chart below).

We set our target at 0.8050, which corresponds to February 2nd (2014) low.

KiwiDol(1)

(Source: Reuters)

Buy the dips on NZD/JPY?

It looks to me that the 14-day SMA (orange line) has been acting as a ‘strong’ support on NZD/JPY for the past couple of weeks. Despite our bearish sentiment on the Kiwi, we also turned bearish on the Yen and we believe that bearish Yen is preferable to bearish Kiwi. Therefore, we will try to buy some at around 87.30, stop loss below 86.90 with a target at 88.00.

NZD-11-Sep(1)

(Source: Reuters)