USD gains further and metals continue to melt down - where is resistance to this move?
No big data catalysts today, but volatility may nonetheless continue to shake the market. |
MAJOR HEADLINES – PREVIOUS SESSION
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| THEMES TO WATCH – UPCOMING SESSION Key Risk Events (All times in GMT)
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| Market Comments Metal prices picked up fresh momentum to the downside overnight, with silver off as much as an amazing 3 dollars from the previous day's highs. The USD also saw a fresh wave of strength. There don't seem to be any catalysts to this move other than the massive paradigm shift recognition the market has undergone over the past 10 days. We've gone from a world in which the market was fretting runaway inflation and Fed credibility to a world in which all interest rate and inflation forecasts point south in the space of a few days and the "global recoupling" trade suddenly finds traction after months and months of divergent trajectories around the globe. The catchup of the EM with the rest of the world has been the tipping point in the latest leg of the USD strength (and especially the shift in view on how China may behave on the Yuan as it attempts to avoid a hard landing and the Russian Central Bank's outright statement that it didn't think that the USDRUB trade is a one-way trade anymore.) Yesterday's record high inflation numbers from the US were simply written off as old information as the focus is firmly on commodity prices and the forward implications the fall in these will have for coming months. It's hard to believe that GBPUSD was trading above 1.9900 a mere 11 trading days ago. At this stage, the moves in the USD and commodities are beginning to feel a bit panicky, as if the market was not only far too positioned the other way and getting stopped out of longer term positions, but also getting afraid that it has "missed the move" in the opposite direction as fresh new USD longs and commodity short positions pile in. While the momentum is fresh and hot here and could carry the USD another percent or two higher, we would expect two-way traffic to begin to develop sooner rather than later. For today specifically - it's Friday, and the market is likely thinking back to the monster USD move last Friday with trepidation, so we could get a similar trading range today. Chart: GBPUSD and EURGBP GBPUSD: The pressure on GBP is enormous as GBP has become the goat of the G-10 currencies. One headline this morning trumpeted that GBPUSD has sold off 11 days in a row and that's the worst in 37 years (we haven't double-checked this data, but it sounds plausible). Looking at a longer term chart shows just how severe the sell-off has been. The pair found support yesterday at the 0.618 retracement level of the huge move from late 2005 lows to the Nov. 2007 top, but has since dropped even further. The 200-week moving average, which held so well the last time it was tested, also fell, as did the rising trendline stretching all the way back to 2001. The next major support comes in at 1.8000 (0.764 retracement) and then the flatline level all the way down at 1.7050. The key resistance now is the old rising trendline continuation and the 200-week moving average. |
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