Currency Updates:
There was some quite unbelievable volatility at times yesterday and the amounts flowing through the market were simply massive. Asset managers are trying to exit long-term structural interest rate plays and macro funds are trying to book profits on long-term Yen short positions. All of this is adding up to mayhem at times.
It’s NFP Friday, usually a volatile day anyway, so we should prepare for some extra fun and games, with the focus remaining on USD/JPY in particular (which was over 3% lower on the day at times yesterday).
TECHNICALS: The short-term AUD/USD downtrend remains in control and yesterday’s break below .9500 suggests that there is more downside to come. Longer-term support at .9390 is still a major obstacle for the bears and I wouldn’t be surprised to see further volatility inside of a .9400/.9750 range (see chart).
CROSSES: AUD/JPY made some really big moves yesterday and briefly broke below important chart support at 92.90. The big flows remain AUD negative so selling rallies in this pair is preferred.
EUR/AUD is consolidating above 1.3800 and I think it’s too dangerous to try and pick a top in this pair. Even if the up-trend does stall, we are more likely to see a period of consolidation rather than a sharp retracement, given current flow trends.
ORDERS & FLOWS: Asset managers have been dumping AUD/JPY indiscriminately, which is typical of a panicked market. Big AUD selling has also been reported against the EUR with one local Australian bank reportedly working through some AUD20 billion in sales against the single currency.
INTRADAY CONCLUSION: The AUD has fallen a long way on some of the crosses but the volumes are still very large and mainly AUD negative. I prefer pick a wide range in AUD/USD and play that with a mild bearish bias.
TRADE OF THE DAY: I think that USD/JPY still looks extremely dangerous and we could see more downside cleanouts. I favour selling intraday rallies but keep positions smaller than usual and stops wider, given the volatility.
