AS Gerry reported overnight, some of the big Middle-Eastern players were very active buyers in EUR/GBP yesterday. The break above .8280 also encouraged some technical buyers to enter the market, both on a stop-loss basis and also initiating fresh longs.

A friend of mine who sees a lot of the bigger interbank flows and orders suggests to me that selling the rally may prove to be an excellent risk-reward trade. He suggests waiting until .8350/.8400 and if the market stalls there for a session or two, then sell with a reasonably tight stop looking for a test of .8000.

Despite the very heavy option-related selling below 1.3000 which took the market as low as 1.2850, EUR/CHF has bounced back very impressively. When a market bounces hard despite being in a strong downtrend and despite heavy selling still occuring, then we may be close to a bottom.

Another point to keep in mind is that the flat trendline support in USD/CHF comes in at 1.0020.

All music to the ears of a contrarian like myself but I’ve been burned a few times already so I will proceed with caution.

USD/JPY and USD/CHF are both slightly higher in very early Tokyo trade.

The heavy stops were all positioned above .9080 and AUD/USD rallied to a high of .9116 after they were triggerd in NY. Now we have fallen back to this level on the usual Asian market profit taking.

The other majors are trading quietly inside 15 pip ranges.

The German Bundesbank has unanimously expressed its wish to see controversial board member Thilo Sarrazin ousted from his position.

The news is that there is no news. We’re still stuck in the horse-trading pen and it looks unlikely that we’ll have any result this week.

The independents had asked both parties to present their policy costings to the Australian Treasury for assessment. The Liberal opposition initially refused and now we know why. Treasury found an AUD$7 billion gap in their costing estimates. Ah politicians, at least you know where you stand with them.

Strong moves higher overnight in EUR/GBP, EUR/CHF and EUR/JPY have turned momentum in favour of the EUR, in the short term at least. Buying dips would seem to be the favoured strategy whilst this cross action is taking place.

Dealers report bids starting at 1.2750 through 1.2730 which should support at least during the Asian session. Mixed bag on the topside with stop-loss buyers and profit-taking sellers mixed together until we get close to 1.2900 when the sellers start to dominate.

Sovereign players have been very busy in the cable over the last week or so and more orders are being reported.

It’s unlikely that Asia will witness any big moves today but if cable does rally and stall at 1.5515, then you’ll know that the offers are decent in size.

It can be beneficial to take a step backwards and look at the overall picture. The weekly chart shows some strong resistance at .9400 and a more recent bullish trendline coming in around .8800. I’d expect these parameters to hold for the next few weeks and playing as close to the edges as possible seems like a sensible strategy.

The AUD and the EUR have made some decent gains overnight and it now remains to be seen whether this trend continues now that September is upon us. I think we are probably more likely to get some false alarms before the next trend sets in.

On the economic data front, the Australian trade balance is due out this morning but normally doesn’t move the market. All the big stops above .9080 were triggered overnight and a session of consolidation is favoured.

Good luck today.

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