US equity futures have already given back a good chunk of Tuesday’s gains, and any reprieve offered on the back of talk of recapitalization of European banks, has been mitigated by the broader risk negative market environment and a downgrade to Italy’s ratings. At this point, talk of a recapitalization of eurozone banks is just that, and with the threat of Greek default and contagion still very much alive, we do not anticipate any sustainable rally in risk correlated assets. Also weighing on sentiment into Wednesday have been Dexia’s forced bailout, a profit downgrade at Deutsche Bank, and a nationwide strike in Greece.
However, technically, it is worth reminding shorter-term traders that many of the major currencies are looking stretched against the buck and could very well be due for some form of a corrective rally. The commodity bloc probably best represents this fact, with Aussie, Kiwi and Cad all putting in bullish reversal days on Tuesday and looking like they want to rally from oversold levels. In light of this price action, our strategy would be to stand aside for the time being and look for opportunities to scale into fresh commodity bloc shorts over the coming sessions. Selling Aussie back into the 0.9800’s, Kiwi into the 0.7800’s and buying Usd/Cad below 1.0200, would be ideal entry points.
Moving on, Aussie retail sales have already come in much stronger than expected and could give the currency more of a lift intraday should risk sentiment turn around. Looking ahead, the calendar is quite busy in European trade, with eurozone PMIs and retail sales, and UK PMIs and GDP seen as the highlight events. Elsewhere, oil has been consolidating gains seen earlier in the session, while gold is tracking moderately higher.
ECONOMIC CALENDAR
TECHNICAL OUTLOOK
EUR/USD: The market remains under intense pressure and the latest corrective price action has now officially come to an end with a fresh lower top confirmed at 1.3690 following the drop to multi-day lows below 1.3360. This should open the door for a measured move downside extension towards our next objective by 1.3000 over the coming sessions, with only a break back above 1.3690 to delay outlook and give reason for pause. In the interim, intraday rallies should be well capped below 1.3500 on a daily close basis.
USD/JPY:This is a market that looks like it trying very hard to establish some form of a base after recently setting fresh record lows just under 76.00. Although the downtrend remains intact and has been fairly intense, longer-term studies welcome the prospects of the formation of a material base and shift in the overall structure. Price action over the past several days has been confirming, with the market very well supported in the 76.00’s and unable to extend the downtrend to fresh record lows. From here, we look for the establishment back above the 50-Day SMA to reaffirm our recovery outlook and accelerate gains towards next key resistance by 80.25 further up. Ultimately, only a daily close back under 76.00 delays.
GBP/USD: The latest corrective price action has stalled out by 1.5715, and it looks as though the market could be in the process of carving a fresh lower top ahead of the next downside extension back below 1.5325 over the coming sessions. Below 1.5325 should then accelerate declines back under 1.5000, but in the interim, look for any rallies to be well capped ahead of 1.5700, with only a break back above to delay outlook and give reason for pause.
USD/CHF: Although daily studies are showing overbought and warn of the potential for a short-term corrective pullback, the recent daily close back above the 200-Day SMA is significant and now opens the door for the next upside extension towards 0.9500 further up. Medium-term and longer-term studies still show plenty of room for upside ahead, while the short-term outlook also remains constructive above 0.8645. Ultimately, only back under 0.8645 delays short-term outlook and would open the door for a more sizeable corrective decline. Still, even at that point, buying into dips would be the preferred strategy.
source from: dailyfx
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