Sunday, July 4, 2010
Currencies: AUD and NZD outperformed, while CHF and JPY lagged. AUD was buoyed by a mining tax deal reached in that country, and the subsequent rise in risk seeking caused the JPY weakness. CHF weakened after extreme EUR/CHF weakness prompted short-covering and speculation about SNB intervention.
EUR/USD. Down channel rejected
EUR/USD (1.2510) is down very slightly overnight, consolidating the huge gains yesterday. Some ascribe yesterday’s move to a huge short EUR / long gold position unwind, while others indicate that it derived from an increased focus on the downside risks for the US economy. Still others note that the Euro Zone dodged bullets this week with Spain issuing debt and the ECB’s 1yr loan facility expiring without incident.
Trend: Daily higher; Weekly higher.
Overbought/Oversold (stochastics): Daily overbought; Weekly oversold.
Support / Resistance Levels: Support for EUR/USD lies at 1.2152 (Jun 29 low), 1.1877 (Jun7 low), 1.1827 (Mar’06 low), and 1.1640 (Nov’05 low). Resistance lies at 1.2540 (Jul1 high), 1.2672 (May 21 high), 1.3094 (May10 high), 1.3692 (Apr12 high), 1.3818 (Mar17 high), 1.4026 (Feb3 high), 1.4194 (Jan25 high), 1.4579 (Jan13 high) and 1.4626 (Nov low).
The CFTC, EUR, non-commercial, net position (-64K) worsened moderately as the June rally in EUR/USD has stalled.
The risk reversal (3m, 25delta) ticked higher on spot’s breach of 1.25.
Implied Vol (3m) slipped overnight on the back of spot’s sharp rally.
Cross-asset valuation: The significant correlations that EUR/USD has during the past 60 days are the 5yr yield spread (positive), the 10yr yield spread (positive), the US10yr yield (positive) and the SPX (positive).