Goldman Sachs Spot Desk Strategies: by Milan Cutkovic


Consolidation continues and yesterday the Euro reversed gains as the dollar stabilised and we saw players reinitiate EURUSD shorts. I stick with the view that ultimately EURUSD will make new lows but it is difficult to predict how long this holding pattern will endure. In the meantime I am staying flexible, trading the range and looking for either a suitable rally or new catalyst to warrant a fresh short. On the day 1.2680/1.2700 should provide decent resistance and only a move through 1.2800 materially changes the outlook. Support at the Asian 1.2625 low followed by Friday’s 1.2605 bottom represents first support, a move through 1.2570 and all the focus will be on the big 1.2500 level, but timing is hard to call.


Watching yesterday’s price action in USDJPY, it is evident that the short term market had got itself long JPY as it watched other asset classes unravel and anticipated this to filter through into the currency markets. A long JPY position and a revert back towards the old risk on/off paradigm makes perfect sense here, however a stale short USDJPY market, a relatively stable session in equities given recent down moves and longer term players looking to buy this 3% correction in USDJPY saw us squeeze back above  the 107.00 level into the London close. The dip below 84.00 in NZDJPY gave us the opportunity to take back our shorts, as a further capitulation in X-JPY never materialised on the day. Given the above we are moving towards a long bias in USDJPY, but will look for confirmation of the move on a break of 107.60 tech level, risking a move back below 107.00, for a move above 108.50.


A disappointing CPI print from the UK sees cable shed close to 2 big figures on the session – admittedly the dollars generic bid tone contributing to at least 1 of those. Even when you strip out the components that the market expected to weigh on the headline (food as a result of the ongoing price war, and energy prices) a 1.5% print on the core vs 1.8% expected saw short sterling rally hard. With cable having broken last week’s lows of 1.5942/43 mid-afternoon, EURGBP has taken out 0.7950 and into this mornings employment figures the risks appear skewed towards a continuation of the Sterling sell off. Wage inflation will as ever be the sticking point for the market – the November 2013 lows of 1.5855 the first target on the run towards 1.5720/40 (series of 2013 highs and 61.8% retrace of 2013 lows to 2014 highs). Resistance well defined at 1.5940/50 (failed to regain after the break of last weeks lows) and 1.6010/20.


Westpac Consumer Confidence bounces ever so slightly overnight and as equity futures stabilise AUDUSD claws back 50 pips of losses. Whilst there is little on the schedule to suggest that the pair should break out of the broader 0.8640/0.8820 range, retail sales from the US are likely to drive generic risk sentiment on the session (many asking how retailers will report iPhone sales – one off income, or spread over contract length?). In New Zealand we are due the results of the fortnightly dairy auction 3/3.30pm London time. Its hard to ignore the 49% decline in the index since February, and once again you would expect supply to be high (50% of produce sells between September and December). Whilst the deferred bumper 2013/14 Fonterra pay-out from October will tie producers over in the short run, a failure to bounce meaningfully in the coming months will hit those with high debt burdens especially hard. Support in NZDUSD comes in at 0.7790/0.7810 ahead of 0.7700/20 with resistance still 0.7920/30 ahead of 0.7975/95 (last weeks highs, level you could sell post impromptu Wheeler speech).

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