Financial Advisor

Daily Report: Dollar Continues to Gyrate Following Choppy Equities

Although the single currency tumbled to record low against the Swiss franc earlier this week on massive safe-haven demand for franc, Swissy also nose-dived to historical low of 0.7068, both currency pairs rebounded yesterday partly due to rebound in regional stock markets and verbal warnings from SNB officials. SNB repeated that more measures to curb strength in Swiss franc will be taken if necessary, Deputy President Thomas Jordan was quoted by saying a temporary tie between the franc and the euro to stem CHF’s rally would be legal under the SNB’s authorization. He said ‘any temporary measures to influence the exchange rate are permissible under SNB’s mandate as long as they are consistent with long-term price stability’. Nevertheless, traders believe there are not much the Swiss central bank could do under current atmosphere especially with the SNB already lost over $10 billion in H1 of this year by increasing its holding of foreign currencies. Room for expanding measures will be very limited and SNB may only be able to increase the supply of Swiss franc which could just slow down the pace of franc’s rise but not turning the major direction under heavy safe-haven flows. EUR/CHF slipped again from yesterday’s high of 1.0529 back to 1.02 level, however, rebound in Dow and S&P futures lifted the pair again today and it looks like traders would closely watch development in global equities in overall risk-off trades.

The greenback finally rebounded from yesterday’s low of 76.35 on rumors of buying by large pension funds, the pair jumped to as high as 77.23 in early Tokyo morning on stop-hunting activities (stops at 77.00 and 77.20) were triggered). However, dollar ran into heavy offers there and quickly dropped back to around 76.55/60 as Nikkei 225 turned down to negative territory with stops below 76.50 in focus (looks like more stop-hunting would be seen in the near term). More finds were seen buying 79.00 call options (1-week, 1-month and 3-month) and there are still rumors that BOJ/MOF are biding persistently above record low of 76.25 to prevent the pair from falling through the post-earthquake historical low formed in March. One should note that if that is the case which means those bids were working in New York session but that needs to be confirmed by monthly intervention data. Traders are becoming more nervous today as BOJ/MOF intervened last week also on Thursday and there are talks that MOF Noda cannot bear to fail in this round of intervention as he is looking to become the next Japan’s Prime Minister after Kan.

Euro fell sharply yesterday on speculations of an imminent downgrade of French AAA sovereign rating and although the 3 rating agencies (Moody’s, S&P’s and Fitch) all came out to reaffirm French top rating status and positive outlook, not much help on traders’ concerns over French debt problem and a possible collapse of French bank. EUR/USD dropped to as low as 1.4122 this morning before rebounding on recovering Dow and S&P futures, traders are getting obsessed and followed the movements in stock markets closely especially with a relatively light economic calendar today (only U.S. trade balance data at 12:30GMT).

Sterling declined yesterday as well on dovish inflation report from Bank of England with both CPI and economic growth outlook were revised lower from the previous report in May. Nonetheless, cable also rebounded this morning in Asia in tandem with euro on risk-off trades, there are talks of decent bids above sizeable stops at 1.6100 and 1.6050.
Elsewhere, although aussie slipped briefly after the release of weak job reports (July employment change at -0.1K vs forecast of 10.3K and unemployment rate rose to 5.1% against consensus of 4.9%), an Asian central bank was reported buying aussie aggressively just above 1.0100 level and pushed AUD/USD sharply higher to above 1.0300 level amidst very thin liquidity.

AUD/USD Daily Outlook

Daily Pivots: (S1) 1.0091; (P) 1.0252; (R1) 1.0338; 

AUD/USD's break of 1.0211 minor support suggests that recovery is finished at 1.0414. Intraday bias is mildly on the downside for retesting 0.9926 first. Break there will confirm resumption of the whole fall from 1.1079 and should target channel support (now at 0.9664) and below. Meanwhile, note that consolidations from 0.9926 could extend further, but even in case of another recovery, we'd expect upside to be limited by 1.0526 support turned resistance to bring another fall before whole correction form 1.1079 completes.

In the bigger picture, bearish divergence condition daily MACD suggests that rise from 0.8066 might be finished. And that's possible considering that AUD/USD has just missed a long term projection target at 1.1084. The break of 1.0390 support affirms this case and deeper decline would now be seen towards long term channel (now at 0.9664). But we will treat it as a correction only. And, as long as 0.9404 resistance turned support holds, the whole up trend from 2008 low of 0.6008 should still be in healthy status.

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