10/11 Daily market commentary

Prepared by Ken Veksler, Head Trader, Saxo Bank

Fair to say I’m feeling a little more chipper this morning and it may just have something to do with taking profit on half of my EURGBP long overnight. Clearly this position and the misery of the Cable was helped by overnight news that Fitch regards the UK the most likely of all developed nations to lose its AAA sovereign rating in the near future. Cable as a result took a swan dive of around 150 points lower and tested the 1.6600/6580 support zone. This was despite the fact that the RICS data posted almost 6 year highs (best results). It tells me that this market is sensitive to the Cable downside and is more likely to move spectacularly lower on the back of a bad inflation report tomorrow. On the day I am a cautious seller of rallies looking to scale in from 1.6680 up to 1.6750.

The EURUSD has retreated a little overnight despite the best performance of the DOW for 2009, but again price action is reminiscent of the last time it got to the 1.5000 area and pullbacks seem to be shallow. I believe we will be testing the 1.5060 area sooner rather than later and moves lower into 1.4930 and 1.4885 provide opportunities to get long into this move. Of interest although likely little impact for the cross today will be the ZEW index survey which is likely to continue its recent positive tone, but if anything I think this will be supportive of the EUR rather than outright bullish.

The AUD overnight failed to really capitalize on the good business confidence data out of Australia and this price action once again suggests to me that an exhaustive rally is in the making. I look for a test of 0.9330/40 to fail and would like to sell into that resistance. Trade minister Simon Crean last night almost verbosely repeated New Zealand’s English (of a few weeks ago) in saying that the domestic economy and exporters in particular will need to get used to a stronger currency and that this is simply representative of the shape of the domestic economy. Hmmm….

Otherwise in the USDJPY my feeling remains, a sell on rallies into 90.30 looking for 89.60 and a break of which shows 88.90.

One last comment on my EURGBP long, the next test is that of the overnight high 0.9015, a persistent and clean break of which takes us into the next resistance zone of 0.9050.