US Open – 25.09.14

After the minor correction at the start of week, USD continues to charge higher, helped by speculation of further action from other central banks. EURUSD broke below the March 2013 lows of 1.2745-50 early doors in London and briefly traded on the 1.27 handle. Spot is now hovering around 1.2730. We think the selloff may continue in the near term given the increasing divergence between the ECB and the Fed. The next major support zone at 1.2650-60, last seen back in September 2012. Savi Trading expects EUR downside risk to grow in the run up to next week’s ECB meeting.

USDJPY has mainly sat on the sidelines, now sitting in the middle of the day’s range at 109.22. Japanese equities have had a good session, with the Nikkei up to its highest level in almost 7-years. This time round, stocks have played catch up with FX rather than vice versa.

There’s not a lot to say about GBP. We have seen a little bit of demand for the pound against various other currencies, but cable has gone into drift mode.

Overnight, Reserve Bank of New Zealand (RBNZ) surprised the market by releasing an unscheduled statement on its website explaining why it believed the Kiwi was too high.The article, titled “New Zealand’s Exchange Rate: Why the Reserve Bank believes its level is unjustified and unsustainable,” was a serious piece of jawboning and it had an immediate impact. RBNZ governor Graeme Wheeler noted: “The New Zealand dollar exchange rate is at exceptional levels compared with its history….Our modelling work indicates that the real effective exchange rate is above the level that can be justified by cyclical economic variables and that its current level is unsustainable over the longer term.” Wheeler also warned: “Past experience suggests that when the New Zealand dollar begins depreciating from an unjustified and unsustainable level, the ultimate adjustment can be large.” The Kiwi promptly fell to 0.8000, compared to 0.8070 when the statement was released. It continued to drift lower and was testing 0.7984, the 76.4% retracement of the rally from 0.7721 to 0.8836, at London stepped in. The pace of selloff has eased in Europe as NZDUSD consolidates around 0.7960, for now. However, if the NZDUSD downtrend that started in July is going to be similar in magnitude to the down moves in 2012 and 2013 then we will end up around 0.7785-0.7830 in this move.

AUDUSD hitched a ride lower on the back of the Kiwi, triggering a stop-loss run down to 0.8818. There was no market impact from a mildly-anticipated speech from RBA Governor Stevens. He said that he is open to using macro-prudential tools, but that he is sceptical they are a panacea. Despite the price action, we have actually seen quite good AUD buying throughout the Asian session. Our AUDUSD flow is balanced at the moment.

USDCAD has been steadily grinding higher today on the back of general USD strength – spot rose above the 1.11 barrier again as Europe walked in, and is now trading at an intraday high of 1.1115. Savi believes 1.1040/50 should provide strong support, and US and CAD data this afternoon should provide further direction to the loonie.

That’s it for today and have a good day trading.