Thursday, July 29, 2010
Currencies: A fairly narrow range overnight, but clear evidence of the pro-growth, risk-on trade. CHF and JPY underperformed, while NZD, AUD and CAD outperformed.
EUR/USD. Stonewalled at 1.30
EUR/USD (1.3003) is up overnight and continuing to press upwards for a breach of 1.30. However, 1.30 continues to prove stubborn resistance, leaving the currency to languish in a sub-1.30 consolidation.
* Trend: Daily lower; Weekly higher.
* Overbought/Oversold (stochastics): Daily overbought; Weekly neutral.
* Support / Resistance Levels: Support for EUR/USD lies at 1.25 (psychological), 1.2152 (Jun 29 low), 1.1877 (Jun7 low), 1.1827 (Mar’06 low), and 1.1640 (Nov’05 low). Resistance lies at 1.3029 (Jul20 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 (-26K) moderated slightly, consistent with the continued test higher to above 1.30 in EUR/USD up to Tuesday.
* The risk reversal (3m, 25delta) rose along with the rally in spot. The reversal is still heavily skewed for EUR downside, but it lies in the middle of its six month range – suggesting two way price action.
* Implied Vol (3m) fell overnight. It has dropped into the bottom-third of its six-month range but is not yet extreme.
Cross-asset valuation: The significant correlations that EUR/USD has during the past 60 days are the 10yr yield spread (positive), the US10yr yield (positive) and the SPX (positive).