Currency Updates:
AUD/USD Short covering persisted in Europe’s morning after the break of s-t trend-line support during Asia saw limited follow through. Europe lifted AUD/USD from 0.8750 & had it near 0.8780 as NY got going. AUD buying remained the theme in NY as risk was generally buoyant and AUD crosses remained bid. AUD/JPY lifted from 94.75 towards 95.25 while EUR/AUD slide from the 1.4420 area down near 1.4365. This allowed AUD/USD to rally from NY’s open to a high of 0.8824. A brief bout of road based USD buying dipped AUD/USD back near 0.8795 but the pair regained its composure. It bounced and sat just above 0.8810 late in the day. The broad 0.8640-0.8900 range remains intact as does the l-t bear trend but some squeeze risk is extant. The pair has recently been trading within a symmetrical triangle. The bottom was pierced in Asia but it was a false break. Now the pair looks poised to make a break of the triangle top. If that occurs recent shorts may cover and a 0.8900 test may be due. Should 0.8900 break a bigger squeeze may be due as it indicates s-t bottom may be in place.
EUR/USD A tight range held in Europe’s morning as EUR/USD lingered 1.2635-65 with it ultimately sitting near 1.2650 into NY’s open. A quiet session looked set to hold in NY but a flurry activity ensued on a leak of the ECB draft on the bank AQR. The story noted that 25 banks would fail the tests at the end of 2013. EUR/USD dived down near 1.2645 but quickly recovered as traders took a second look at the story. It was also noted that only 10 of the banks face shortfalls at the moment. EUR/USD then saw a relief rally as European bank stocks rallied. The pair ran s-t stops above 1.2680 and worked through Asian offers up to 1.2690 before hitting a 1.2694 high. The pair slid off the highs as Germany’s Merkel & France’s Hollande hit the wires. Merkel noted that Draghi made it clear to EU leaders that reforms & improved investment was key for the EU recovery while Hollande stated that dialog on France’s deficit reduction continues but “France thinks it has done what is necessary’. EUR/USD hit 1.2660 but then sat near 1.2670 late in the day. Traders now await the official test results due Sunday.
USD/JPY Financial market anxiety, the VIX for instance, might not be back down at sleepy lows seen over the summer, but they have retreated about two-thirds of the way from the recent peak toward the summer trough; a move that has been mimicked by the USD/JPY’s retracement of Oct’s 110.09-105.20 trading range. That USD/JPY never retreated as much as the VIX climbed from its summer lows shows how demand for US assets, from inside and outside of Japan, persists. The same can’t be said for EUR/JPY, which got well below its 135.75 summer lows last week and has struggled to retake 137 with this week’s broad rebound in risk. Flow data show Japanese investors have been exiting EUR trades (mostly OATs) in favor of Tsys this yr as the EUR govt debt yields tumbled, in some case even below Tsys yields. The ECB’s negative depo rate is forcing money out of EUR reserves, while the BOJ’s QQE, negative Trade balance and need for returns above what JGBs offer make the yen a short, all else being equal. USD/JPY’s rally and close above 107.64, Kijun & 50% Fibo resistance Thur give that pair a bullish, S-T technical bias. AQR Sunday is next risk.
Looking Ahead – Economic Data (GMT)
• No Significant Data
Looking Ahead – Events, Other Releases (GMT)
• Sun, Oct 26 Brazilian Elections
• Sun, Oct 25 Results of EZ bank stress tests
