Forex News | Currency News by Forexlive

EUR/JPY has fallen almost 100 pips from it’s NY closing level as events in Iran and North Korea remind the market that we are really only one big event away from a significant hiccup in the worldwide economic recovery. Risk aversion has been the name of the game, with both the JPY and CHF crosses giving up ground. The Nikkei and Kospi are both marginally lower, echoing the sentiments of the FX market.

Nevertheless, remember my pet theory. The first move in Asia on a Monday morning, especially if it’s against the trend, is always wrong. Let’s wait and see.

Early Tokyo has taken a dislike to EUR/JPY, selling it down from 137.70 to 137.30. Those players caught long at the wrong levels might be bailing out and reassessing as this pair has certainly come quite a long way in a relatively short space of time. GBP/JPY has also met with some early selling, currently down 40 pips at 161.20. The uptrend in both pairs remains unchallenged but both have scope to drop to 135.80 and 160.00 respectively.

Another reason to be very careful getting long EUR/USD, cable or AUD/USD at current levels. USD shorts are at their highest level in almost a year, although not yet at extremes. Overall JPY positioning has flipped from long to short and the big unwind in GBP short positions has gained pace. EUR, AUD and CAD longs continue to increase.

In other words, the “carry trades” are back in vogue. This trend has been ongoing for about three weeks so it is not yet getting close to ripe.

That would seem to sum up the prognosis for 2009-2010 from the Confederation of British Industries. Sterling is steady this morning at 1.6440 and .8515 against the USD and EUR respectively.

News that North Korea are threatening to enrich more uranium for use in nuclear weapons is adding to the geo-political risk aversion play. In days gone by, the USD and CHF were always the big winners when any political tensions came to the fore. If we return to those days, as the small moves this morning suggest we might, then the USD could be the big winner as it makes up a lot of ground lost recently. (Another reason to leave an offer in the AUD/USD around the big Fibo level at .8375!).

USD/JPY is above 98.50 and EUR/USD is at 1.3970 as the USD looks a bit more attractive today, probably due to weekend events in Iran. The CHF is also a bit stronger on the crosses which confirms that there is some geo-political risk aversion plays taking place.

The AUD has been the second strongest major currency in recent months behind the fast-recovering pound but I feel the run is coming to an end. My reasons for turning neutral from bullish are

• Price- quite simply the AUD is not cheap anymore as it was against the USD at .63 and the EUR at 2.00
• Friction with China over the Chinalco-Rio failed deal- we don’t yet know what the repercussions will be, if any. If China even looks like sneezing, the AUD will fall sharply
• The real money buyers will soon dry up leaving the market long at wrong levels
• Unemployment data- much of the recent rise, especially the last leg from .77 to .82, has been fuelled by “excellent” jobs data showing the economy is still strong. Many of the jobs lost in Australia have been in better-paying white collar jobs and these newly unemployed will generally not register as being so.

I am looking to trade a .77/.84 range in the AUD in the near future with a bearish bias. Those looking for a return of the risk aversion play should consider AUD/JPY, which I now feel will top out around 85 in the very near future.

The move from 1.4340 to 1.3800 can be considered a completed retracement and the market is gearing for the next push higher. The subsequent bounce from 1.3800 to 1.4180 has also completed a retracement, 61.8% in this case to 1.3950, and this level is now expected to be the base for the next push higher.

There were said to be some big option barriers at this level last week and I’m not sure whether they are still active or not but I am hearing of large stops above 99.00. Not much in the way of decent support in USD/JPY until around 97.40. There are not a lot of reasons to be long JPY in the current environment apart from risk-aversion so these stops may get triggered sooner rather than later.

Important technical support at .8490 held firm overnight despite a marginal break below. Stubborn longs should now consider reducing or scrapping their positions on a clean break below .8475 as there is daylight until .8200/50 and market chatter is that there are some big stops on the .84 handle. That said, there is obviously some decent buying interest around so we may be seeing a pause in the downtrend.

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