Vantage FX | Yen and Sterling under pressure, Aussie quiet| 19th February 2013

February 19, 2013

With the US out for President’s Day markets were left to their own devices overnight but that didn’t stop currency traders have a fat old time reinforing recent trends in the Yen and the Pound.

The G20 meeting over the weekend in being soft on the big developed nations and Japan in particular was seen as a green light to further Yen weakness yesterday but traders weren’t quite as aggressive as last week but still only just below the high of 94.45 with the overnight high of 94.20. Darth Vader would say that “the Force is strong in this Trend” and so it is. The USDJPY pierced the fast moving average on Friday but has rebounded solidly so far. We find it hard to get too excited given all our usual indicators which are flashing warning signs but unless USDJPY falls down into and through the 91.90/92.30 region the rally is intact.

Indeed ECB boss Mario Draghi seemed to reiterate the G7/20’s belief that the big countries have the right to manipulate their currencies through the domestic policies which are of course, cough cough no laughing, only aimed at domestic issues and not the currency. Reuters reported this morning,

“Most of the exchange rate movements that we have seen were not explicitly targeted, they were the result of domestic macro economic policies meant to boost the economy,” Draghi said.

“In this sense, I find really excessive any language referring to currency wars,” he said, adding that the euro’s exchange rate was “around its long-term average.”

The G20 statement was not disappointing, he said.

“What I did say at the G20 in Moscow, I urged all parties to (exercise) very, very strong verbal discipline,” Draghi said.

There is no doubt that emboldened by the cash that has been made from the the Yen win and with a new BoE Governor coming in with possibly even more aggressive policy than his predecessor the pound is now attracting the attention of the Macro Hedge Fund community. We have been bearish GBPUSD for some time now and the FT reports this morning,

top global macro traders – funds such as Soros Fund Management, Tudor Investment Corporation, Caxton Associates and Moore Capital – are increasingly looking at the pound. They see compelling similarities in the UK’s predicament to that of Japan.

Sterling has already slid against other currencies on a darkening economic outlook: exports are weak, productivity is relatively low and government finances are stretched.

For hedge funds in particular, though, it is the imminent arrival of Mark Carney, current governor of the Bank of Canada, as governor of the Bank of England that has pricked real interest.

GBP has been in a wild 10 cent range for the past 18 months and it seem biased back to the base of this range at 1.5230/50 as you can see in the weekly chart below.

Longer term though the following weekly chart shows just how important the 1.52 zone is but also highlights that GBP has broken a big uptrend (some might say bottom of a long term pennant in the past 2 weeks. So a break of 1.52 would open the way for a run toward 1.42. Our trend following systems are short.

So watch 1.52.

Elsewhere in FX land the Aussie is largely unchanged at 1.0291 having traded a range 1.0291 to 1.0315. Euro too is largely unchanged at 1.3351 having had a 50 point range while the USDCAD seems to be breaking out against the Canadian Dollar with a rise of 0.46% to 1.0108 and through that decisive median line on the chart we have been watching.

On stock markets with the US Closed Europe was mixed and really didn’t do too much. The FTSE fell 0.16%, the DAX was up 0.47%, the CAC rose 0.18% while Milan and Madrid both slid 0.51%. The Italian elections are coming up fast so that might be a cause of market angst again soon depending on how Berlusconi’s resurgence seems to be heading.

On Commodity markets Gold tried to rally but ended down slightly at 1609.50. Short term it still looks oversold but if we look at the US dollar’s performance we see that it is stronger against the Euro recently, the pound, the Yen, Swissie and the Canadian dollar amongst others. So to think that Gold can chart its own path. Gold closed largely unchanged at $1609 oz while Silver rose 0.69%.

Data

RBA Booard meeting Minutes could be market moving this morning if they give insight into the timing of any cuts. The Japanese leading index is out this morning as well and then all eyes will turn to the German ZEW survey tonight which is expected to increase from 31.5 to 35.

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