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FAROS TRADING | FX MORNING UPDATE
Market Summary – 08/25/2010
Good Morning.
Please see our new attachment of “Trade Recommendations”
for your guide. Although we do not make explicit currency
forecasts at Faros, we do highlight themes that we see occurring
in the markets and those currencies that are likely to benefit.
JPY again the focus early in the Asian session as the market was
looking for a further response from Fin Min Noda and PM Kan
and got a little more of the same in terms of quotes. Noda
declined to comment on a report that he was going to meet
with US Treas Sec Geithner, but indicated “to respond
appropriately to JPY rise if needed” while PM Kan “want to show
a response to strong JPY soon”. Japanese exports did little to
help their case for intervention as exports beat expectations
with a 23.5% print vs. 21.8% expected while the trade balance
mushroomed to 804bn JPY vs. 466.3bn JPY expected.
USD/JPY rallied up to 84.68 from 83.90 as there was demand for
cross JPY from real money types after the Tokyo fixing which
also saw buying demand for USD/JPY. Talk of decent sized
Tokyo cut 84.50 and 84.30 strikes also helped to contain
USD/JPY price action. Interesting to note that one of the banks
we speak to highlighted current JPY positioning as not nearly as
extreme as it has been in the past. Hedge funds dominate
positioning with asset managers absent and they estimate the
current position is only 30% of crisis levels.
CNY/JPY also appears to be very key to USD/JPY these days with
the pair down to 12.42 there is talk that 12.30 is the key level.
With USD/CNY at 6.7960 currently, that would imply a USD/JPY
rate of 83.60 as an area where intervention concerns will
increase with the likely outlet still USD/CNY over USD/JPY
intervention.
AUD/USD rallied back towards 0.8900 on cross JPY buying and
the recovery in EUR but ran into some offers as 3 out of 4 MPs
that could sway the hung Parliament indicated they are in favor
of the mining tax.
NZD/USD is failing to perform on risk rallies these days as it
continues to flirt with the 0.7000 level, now trading 0.6968, a
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close below 0.7000 will be very bearish. NZD/JPY also holding
well below 60.00 with a Faros expectation of a test of 50.00 in
the next 6 to 9 months.
EUR/USD under pressure late in NY as Ireland’s debt rating was
downgraded by S&P and we sent out a note highlighting the
need for a ratings ‘catch up’ across the board needed by the
ratings agencies given current CDS spreads. Another bank we
speak to did a similar analysis indicating that Asian ratings are
under-represented and European ratings are higher than they
should be based upon CDS.
German IFO lifted EUR/USD off its post Ireland downgrade lows
and we tested up towards the stops at 1.2730 without touching
them. A Portuguese debt auction was blamed for renewed
weakness in EUR/USD taking it back to 1.2626 with the 1.2606
50% fibo level still key. GBP a notable outperformer as
EUR/GBP gets hit this morning and we look for support in the
cross at 0.8150.
HUF under pressure again as the Economic Ministry reversed
its IMF attitude yet again and we trade up to 284.50 area in
EUR/HUF.
USD/TRY rejected the 1.5370 trend line and we held below the
100 day at 1.5367 and the 50 day at 1.5342 as well, support
seen at 1.5225 the 200 day.
USD/KRW is jumping early in the US time zone up to 1207 in
1m as the market seems a little nervous right now. 1207 is the
resistance zone to watch for any signs of locals.
EUR/CHF sitting on top of 1.3000 now as CHF and JPY are the
preferred ‘safe haven’ currencies of late with the USD a close
rd
3 . USD/CHF looks for support around the 1.0270 area.
In USD/CAD the 1.0750 level is key and the likely area where
models may flip to long USD/CAD
Good Luck