Currency Updates:
AUD/USD With follow through on the break of 0.7700 limited in Europe shorts decided to cover a bit. The pair lifted off the new trend low & sat near 0.7680 as NY began trading. Early action saw the lift persist and it got an added boost on a bout of weak US econ data. The pair tested resistance in the 0.7710/20 zone. The zone held but the pullback was shallow. Broad based USD weakness (ignited by EUR/USD’s lift) saw that zone broken and the short squeeze gathered pace. Pre-RBA levels near 0.7800/15 were only a speed bump for the rally. Upon breaking that zone the pair spiked to a 0.7855 high as shorts that sold post-RBA had to cover. As quick as the gains to the spike high were made, they were given back just as quickly as USD shorts covering took hold. The ensuing slide saw the pair just under 0.7790 late in the day. Recent shorts should have some concerns. RSIs are diverging on the new trend low, a long lower wick forms on the daily candle and the break below 0.7700 looks false. Bears need the 0.7890/10 (10-DMA, Jan 29 high) zone to hold. If it gives way key res near 0.8025/55 likely gets tested.
EUR/USD caught fire in early NY triggered by an explosion higher in oil prices and a bad miss in US Factory Orders. Shorts were surprised by the steep rise, with many EUR bears who had earlier claimed to be confident sellers never showed up as the pair traded as high as 1.1534. Oil is calling the shots across the marketplace right now (+ >18% from Friday) and tensions are feared to be ratcheting up in the Middle East as Jordan claims they will execute ISIS prisoners previously scheduled for a swap. 1.1650, which was the high on Jan 22, is the new panic spot as the post-ECB move to 1.1100 is coming to be seen as a overreach in an increasingly crowded trade.
USD/JPY Beyond the frantic post-RBA cut AUD/JPY dive and recovery, EUR/JPY was the standout. Another chunk of the historically large crop of EUR spec shorts were either squeezed out or opted out of their positions. The move gained pace after the 200-HMA was cleared for the first time since late Dec. Stops then run above two Fibos by 134.80 and 135. Next hurdle is the 21-DMA, but the likelihood is a 38.2% retracement of the Dec-Jan slide to 137.66. The Jan 20 high is also there. USD/JPY made another long-legged daily Candlestick as shorts had to chase rising pullback lows along with Japanese importer bids (some watching oil rebounding crazily). Broader unwinding of long dollar trades and limited USD-JPY yield spread gains allowed the daily Tenkan to cap by the Asia and NY highs at 117.75. Many traders are lightening up ahead of the US jobs report on Friday, thus the mean reversion trading pattern this week. AUD/JPY recovered with commodities, but 2-yr yield spreads are close to 1992 lows. Prices homed back toward the Oct ’14 swing low at 91.72 from 89.32, but offers into 92.00 persist. Abe’s BOJ board replacement, Harada, a dove, as expected.
Looking Ahead – Events, Other Releases (GMT)
• 00:00 NZ RBNZ Governor Wheeler Speaks in Christchurch
• 05:00 JP BOJ Deputy Governor Iwata will speak at press conference in Sendai
