RECAP LAST WEEK
The gap up post French Elections didn’t get filled around 1.0777 but the weekly high at 1.0950 held strong to make a triple top. Draghi and the reduced “tail risk” couldn’t break it. Nor could EUR CPI Core at >.2 above expectation. This is very significant to me. The support at 1.0850 is battling with strong resistance at 1.0950 but I prefer to play from the short side. The main reason is CPI CORE (The ECB’s current pet focus) has not increased this much for years. But still we couldn’t break the highs. If nothing else I see the gaps getting filled for another go higher, if the bulls take charge that is. Ultimately I see it lower now France is done.
CABLE consolidated between 1.2750 and 1.2865 in six days then broke higher on Thursday with 1.2900 which is now a good base. Futures shorts are still very large at 91k so watch out for another squeeze into the week. Some desks are talking 1.34 and 1.35 and there’s little to stop it.
Other than that USDJPY chopped but couldn’t properly break the 111.60 area. Trump produced an empty vessel on tax but EURJPY helping general risk on with this pair.
NZD looked like no-one wanted it and USDCAD was a jumpy cat. The 100HMA at 1.3593 a key support and rising. MD Securities did a fair value report for a call to sell up here. I liked but not so much now. Oil still in play of course and NAFTA will re-emerge no doubt with Trump having the upper had in negotiations.
- North Korea heats up with brinkmanship/stupidity for both Trump and Kim. Danske Bank have written a nice piece. I lifted the trade plan because I totally agree with them on this. See below:
“Don’t expect the ‘usual’ safe-haven moves: A rise in NK tensions should tend to drive safe-haven flows and thus induce a broad- based strengthening of the US dollar sending the USD index higher. But, we stress that EUR/USD is unlikely to decline much given the current status of the euro as a funding currency, and the cross may in fact move higher to the extent that Fed hikes could be postponed. JPY, another traditional safe haven, would likely depreciate vis-a- vis majors as a NK strike on Japanese territory would be a real risk. CHF is likely to be the only genuine safe haven in this setting. Asian currencies – not least the CNY and KRW – would weaken in case of a sharp escalation.”
- Geopolitics takes a back seat so will the focus be back on good old fashioned data? Brushing NK aside we’ve got US NFP ISM PMI’s FOMC Statement (no projections or Q+A), UK Services PMI then Yellen Draghi and Poloz all up on the rostrum during the week.
- Play from the short side but 1.0830 will be bought again but I doubt it will last. 1.0950 is key hurdle to get past. It’s a triple top and formidable. Look at 1.0777 for the gap to be filled – it’s not a bad level in itself by the way.
- A lot of horrible chop last week but 111.60 is the area to fully break. 112.50 is the next resistance and downside 110.50 could be supportive.
- 1.2900 now a base but 1.2850 is massive. Buy dips on strong US data.
That’s it gents. Short and sweet but here’s the charts. Patrick Reid will be on Linked In for the odd view here and there.
Enjoy and discuss
Patrick and Adam