Summary of our Traders’ Strategies:
EUR: I have a moderate sized short, looking to add at 1.2680 with a 1.2730 stop. Support expected towards yesterday’s 1.2614 low, whilst a move below 1.2575 would suggest an acceleration to new lows is on the cards.
JPY: We remain long USDJPY, with a trailing stop now below 107.20, looking for a break of resistance above the band at 108.20-50 and a move towards 109.00.
GBP: We maintain our small short bias given the trend in the data and the market’s preference to be long dollars. Our target for a weak number would be 1.5950/60, while we continue to lean again the resistance at 1.6080/84 with 1.6131 above. Levels for EURGBP remain 0.7846 below and 0.7950 above.
AUD/NZD: Looking into next week we are comfortable in retaining our short NZ$ bias vs both AUD and USD – the RBNZ next week are expected to remain firmly on hold, but there is significant scope for a dovish tilt.
EUR
Yesterday’s better German Manuf PMI gave the shorts cause for concern and we saw a decent amount of position covering, evidence perhaps that people do not have quite the conviction or are more financially sensitive than a few weeks ago. I think the dollar should stay broadly on the front foot into next week’s FOMC and also believe the European dynamics are negative and the currency should stay heavy ahead of EZ HICP in a week’s time. But I am a bit comprised between whether we are set to renew the downtrend and attack 1.25 or still broadly stuck in a consolidation pattern. As a compromise I have a moderate sized short, looking to add at 1.2680 with a 1.2730 stop. Support expected towards yesterday’s 1.2614 low, whilst a move below 1.2575 would suggest an acceleration to new lows is on the cards.
JPY
Momentum fears that technical resistance would cap us in the USDJPY space all but dissipated yesterday and patience with the long trade final brought some dividend, as we slowly moved through the offers towards 107.40-50 level and opened the onslaught towards 108.00. Without doubt this move characterised a market underweight dollars and hurting from some violent moves last week. The BOJ end of month meeting is now coming into focus and it is the turn of the Japanese to possible feel the effects of the downturn in Global inflation – as a dip below 1% in core CPI maybe a likely outcome given the drop in oil and its effects on cost-push inflation. As we have pointed out on numerous occasions now, the CPI release on 30th Oct is all important, however we cannot help but fell a move by the BOJ the following day maybe slightly premature and on the trading desk we look to the Dec meeting for further stimulus. We remain long USDJPY, with a trailing stop now below 107.20, looking for a break of resistance above the band at 108.20-50 and a move towards 109.00.
GBP
Overnight, Cable pared some of its losses following the weaker UK retail sales inspired sell off (3.1% v 3.4% cons.). Whilst we have seen better selling on the margin as London walked in, the lack of traction to the downside frustrates those involved. The weakness in the sales number supports the MPCs concern about a recent about slowing growth out of the UK, however growth still remains robust compared to the rest of G10, with expectations for today’s GDP number still at a healthy 3.0% YoY. Nonetheless, we maintain our small short bias given the trend in the data and the market’s preference to be long dollars. Our target for a weak number would be 1.5950/60, while we continue to lean again the resistance at 1.6080/84 with 1.6131 above. Levels for EURGBP remain 0.7846 below and 0.7950 above.
AUD/NZD
A wider than expected trade deficit leads Kiwi to the 0.7780/95 support level before bouncing back to continue in its 0.7830/0.7870 holding pattern. A large aircraft import accounting for roughly 1/3 of the deficit skewed the figure, but even with this stripped out the NZ$919m deficit was larger than expected. With the cross having traded towards 1.1230 we set to retrace sub the figure – price action remains constructive with 1.1140/50 now support and 1.1280/1.1300 still the short term target. AUDUSD recovers well off the 0.8719 overnight lows to settle back into the 0.8760’s and we will wait look towards equities to guide price action on the session. Looking into next week we are comfortable in retaining our short NZ$ bias vs both AUD and USD – the RBNZ next week are expected to remain firmly on hold, but there is significant scope for a dovish tilt. CPI proved a meaningful downside surprise to RBNZ expectations, Fonterra projections for its 2014/15 payout appear elevated and without a bounce in the GDT index these need to be revised lower towards the NZ$4.2/4.4/kg level, Kiwi on a TWI basis has struggled to weaken over the first 3 weeks of October and only in the past 2 sessions have we seen a reaction. Intervention figures for the month of September are release on the 30th October too.
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