The currencies are once more becoming very spooky with sterling/dollar trading its full 250 point range twice in two days. Today is showing signs of trading it again this morning. Cable has given up on the 2.05 level overnight and has pushed down to 2.0430-2.0433 a small support level. A break below here would open up a move to 2.0370 and possibly 2.0300 but with further bearish US comment inevitable punters would be advised to be cautious about getting too carried away. Sterling is still being bolstered by the Euro effect to some extent and if this crutch starts to slide (a move below 1.4260) then the pound could well start to set up camp in the weak dollar zone.
All the currency crosses are frantically going nowhere. Even the mighty Euro has spent the last month trading and re-trading the same 3 cent range. With the failure two days ago at the trend resistance of 1.4350 dealers are pondering whether it is time to asses the chances of some form of pull back with 1.4050 looking to be the target and below this the long term trend support is way away at 1.3560. But against this is the benign neglect of the dollar by the US treasury and Fed. They see a weak dollar as a counter to the Chinese/Far Eastern trade block. Whilst this may stoke inflation, in the US the perception is that this is something that the current administration is willing to risk.
Sterling Yen neatly failed at the resistance mentioned recently at 235.50 and has come off sharply (although all pound yen moves appear extreme these days). Every day is seeing 200 to 300 point moves as either the currency pair seems to have got out of line against the dollar. Quite frequently a move up for the pound against the green back is made on the same day as a yen fall (and vice versa) and the combination of the two is causing some quite violent price action.
Forex Spread Trading, 23 Oct 07
On the FX front cable traded virtually the entire range mentioned many time over the past few weeks (2.0250 to 2.0500) in one day. We have now confirmed this range quite dramatically and our clients were happy to sit on the shorts built up on Friday and Monday morning. We are now attempting to emulate the price action on the 4th, 9th, 12th and 17th of this month as the charts show an almost perfect pattern for four days. If this time is the same we may see the markets climb to 2.0430/50, if this bounce is merely a mirage then we still have to get back below strong support at 2.0300 and (of course) 2.0250 before the bears came out to play.
Forex Spread Trading, 22 Oct 07
Looking at the FX markets this morning clients could be forgiven for thinking that nothing much had changed but this would obscure some pretty volatile markets over in Japan. GBP/JPY has had a 300 point trading range already and whilst we have bounced from 232.20 back up to the current 234.30 the short term chart looks like grim reading. Not surprisingly the bounce point of 232.20 was the kick off level for the recent pound/yen rally and the five day sell off has now just reversed the whole move. Punters will be watching the 230 to 235 trading range which constrained us for most of September. Momentum would seem to favour a fall and our clients are being cautious about getting long.
Dollar/Yen managed to get as low as 113.20 before finding strong buyers and as we can see from recent lows in August and September this general level is proving something of a buying opportunity for traders. The USD/YEN cross has now fallen from around 118.00 to the current 113.92-113.94 six straight down days. The perception that the US administration is shepherding a dollar devaluation is gaining ground and the announcement last week of net $80bn sales of US assets for August has had its predictable effect on the currency. If the cross can close above 114.15 this evening then punters may take the view that this is just another move in the oscillation between 113.00 and 117.50 that has been going on since the August sell off. A close below 113.40 would be taken very badly and may trigger some aggressive selling.
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Forex Spread Trading, 19 Oct 07
As mentioned yesterday clients were looking at the Cable ranges and selling heavily on anything above 2.0430. As the market approached 2.05 this selling intensified and clients were rewarded with a re-affirmation of the 2.0500 resistance with a late drop in the cross. This morning the 2.0400 level seems to have held nicely and clients have taken profits and are now going long again. Easy!). The GBP / USD spread betting cross is now at 2.0425-2.0428 and we are seeing buying.
The Euro has shot through to new highs against the dollar after yesterdays economic data but there seems to be little follow thorough from the initial sharp shift. Traders will be watching the 1.4275 level as a close below here may indicate some short term profit taking. The ECB seems to be getting ready for the possibility of a rate hike (!) as inflation in Germany seems to be shifting higher. The other euro constituent nations are less than happy with the Germanic centric view taken by the ECB especially as the Germans have a massive trade surplus against most nation’s equally massive deficit. France, Italy and Spain would normally expect a weakening currency to aid in the balancing of trade numbers but the ever increasing value of the Euro just makes foreign imports cheaper and cheaper and their own product ever more uncompetitive.
Forex Spread Trading, 18 Oct 07
On the FX markets the pound has swung to the top of the trading range against the dollar and our clients have now got there selling boots on and are hitting any levels above 2.0430. There is a chance of a break out but only if we beat the 2.0475 resistance and close above it. Otherwise punters are just going to take this as yet another oscillation in the 2.0250 to 2.0475 trading range and set up shorts in anticipation of a shift back into the lower reaches. The moves today are generally a dollar weakness play and after the numbers showing huge capital outflows from the US (admittedly in August) players may be forgiven for wondering why this move did not happen yesterday. The US requires huge Treasury purchases every month to balance its books but foreigners had a net $50Bln plus sale figure in these assets. This means that 'saver USA' must have taken up the slack. If sales of US assets are matched with corresponding lightening of the dollars involved (and you have to assume this is the case otherwise why would you sell the treasuries in the first place) then we can anticipate a scenario of large dollar overhangs building up in the currency markets.
The yen has been the major winner over the past few days as it attempts to bounce form the recent fall out. The euro yen is forming an hourly flag formation and traders will be looking for a break out of this to give some immediate directional impetus but aside from this the cross appears to be very choppy in at 164.50 to 167.75 trading range. Sterling yen has run up against the 240 top which caused so much trouble back in April/May and the rejection of the price has resulted in a swift sell off back to the current 237.34-237.42 but the trend and momentum still favour the pound in this cross so dealers are unlikely to press too hard on the downside just at the moment.
Forex Spread Trading, 17 Oct 07
The FX spread betting markets seem to be very much in two minds. The Far East spent all the early morning selling Sterling and Euro sharply lower versus the Yen but the Europeans seem to completely disagree and have recouped much of the falls with some strong position buying. GBP/YEN was at one time down at 235.80 but has now bounced to 237.38-237.46 with our clients seeming to be very much two way, buyers matching sellers. The Euro/yen (like the sterling cross) has come off from the highs of Monday at 165.75 and dealers are waiting to see whether the support at 165.15 and 164.85 will hold. In early trade we did go below these levels but have now swiftly recovered them. At 165.24-165.27 we are still very close and the penalty for getting it wrong in this instance would seem to indicate that punters should 'keep their powder dry' for the time being and await the days events.
As mentioned a couple of days ago cable seems to be stuck in a trading range of 2.0200 to 2.0500 with 2.0300 and 2.0450 as a tighter range within this. The last two days trading action have brought this out once more with selling above 2.0430 taking us down to 2.0300 yesterday where buying was seen in enough size to see a sharp bounce almost back to 2.0400. Overnight the support has been tested again but yet again strong buying at 2.03 has seen the bears off. At 2.0353-2.0356 we are now mid range and seemingly going nowhere.
Forex Spread Trading, 15 Oct 07
On the FX front the Yen continues to weaken against the Euro with a renewed attempt this morning at the 167.65 level before slipping back to the current 167.45-167.48. A second failure here may bring out more sellers but in reality it is difficult to see a reversal in sentiment just at the moment. Japan is in danger of falling into deflation once more and wages are falling again (can you imagine this happening in the UK?) which is dragging down demand for the currency let alone the continued attraction of the 'cost of carry' trade. Punters are long the Euro and Sterling yen crosses and are lapping up the double earner of interest income and price appreciation.
The Cable spread betting market continues to oscillate between 2.0250 and 2.0450 with a tighter trading range of 2.0325 to 2.0425 being the favoured one of our clients. The dollar and yen weakness is flattering the pound at the moment as the currency continues to probe support vs the euro. There is major support at 1.4265 and minor at 1.4310 which with the current price at 1.4325-1.4328 is not a million miles away. Traders are watching the levels closely as a break lower may give cause to offload other crosses as well.
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Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
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