USD remains under pressure into Monday Price action favors higher yielding risk correlated assets IMF issues warning on global growth prospects ECB and EC in discussions on new plan for banks Intraday short position taken in Aud/Usd from 1.0630 Jackson Hole has come and gone and after all of the hype, the actual event proved to be somewhat of a let down, with Fed Chair Bernanke leaving the door open for additional stimulus but stopping short of officially committing to a third round of quantitative easing measures. Perhaps the most revealing disclosure from Bernanke was the announcement of the extension of the upcoming FOMC meeting to two days in order to afford room to "to explore a range of tools that could be used to provide additional monetary stimulus.” Still, markets have used the event risk as an opportunity to sell US Dollars across the board, with the buck falling quite sharply on unfavorable yield differentials and a temporary flight back into riskier assets. We would however, recommend that market participants still proceed with extreme caution as the broader global macro economy remains vulnerable and exposed to additional stress. Most recently, the IMF has come out issuing a warning on the uncertainty of global economic growth, and we believe that this could factor more significantly into price action as the day progresses and investors take more time to digest the fact that nothing has really changed and the prospects for a robust global economic recovery remain exceptionally gloomy. The European debt crisis has not gone away and while the Euro has taken out some key resistance by 1.4535 on Monday, we still see any additional upside in this currency as limited in favor of a resumption of broader weakness. The latest news to come out of the region revolves around a plan in which the European Commission and ECB are considering the possibility of offering central guarantees on certain types of bank debt, to address concerns that some eurozone banks have been shut out of international money markets. Talk of this plan should certainly not be viewed as a risk positive development; with the proposal only highlighting the fact the local officials are legitimately concerned with the possibility of an interbank credit squeeze. On the strategy front, we have gone ahead and taken advantage of the latest risk rally which we believe to be fleeting and have established a fresh intraday short position in Aud/Usd at 1.0630 (see below). The economic calendar on Monday is especially light in European trade, with the UK bank holiday contributing to the lightened schedule. It is however worth noting that the only semi-meaningful economic release on the day has come out of Australia with some discouraging new home sales. This should provide additional confirmation for our trade. The North American calendar on the other hand is a good deal busier with things picking up on the front as personal consumption, pending home sales and Dallas Fed manufacturing are all due out. ECONOMIC CALENDAR
TRADE OF THE DAY
AUD/USD: We have gone ahead and entered a tactical intraday short position in this market with the price rallying back above 1.0600 and into a confluence of resistance in the form of the 50/100-Day SMAs and 61.8% fib retrace off of the major 1.1080-0.9925 move. Despite the impressive rally out from 0.9925, the market is still showing signs of a clear structural shift, with more medium-term and longer-term studies starting to roll over. As such, a lower top is now sought out ideally somewhere in the 1.0600’s ahead of the next major downside extension back towards and eventually below 0.9925. POSITION: SHORT @1.0630 FOR AN OPEN OBJECTIVE; STOP 1.0730. LOOK TO ELIMINATE RISK IF OUT OF MONEY AT NY CLOSE (5PM NY TIME) ON MONDAY. Written by Joel Kruger, Technical Currency Strategist If you wish to receive Joel’s reports in a more timely fashion, email jskruger@dailyfx.com and you will be added to the distribution list.
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