Noda Fails To Halt Yen Buying News and Events:

The recent void in fresh data was quickly eclipsed by a frenzy in JPY and USD buying which pushed USDJPY down to a 15 year low at 84.58 (at time of writing) and EURJPY below its Fibonacci level at 106.30. Remember the market importance of the Australian election? Neither do we.

USDJPY falling below the 85.00 threshold most likely triggered model-based stops and options barriers around the 84.75 level, so keep that in mind ,as stop are littler down 84.00. With today’s JPY appreciation, Japanese Finance Minister Noda announced a unscheduled press conference at 07:40 GMT. While the market anxiously awaited hawkish comments and the potential announcement of an intervention scheme - what we got was a regurgitation of rehashed statements. Noda stated that recent FX moves were one sided, could hurt the island economy and that policymakers were watching the FX and equity markets closely (as the Nikkei traded below 9000).

Although the comments were surprisingly benign, we suspect the Japanese are not happy with the recent movements and that heavy rhetoric may be around the corner. As expected, the USDJPY continues to sell off as verbal intervention is not enough to back the Yen bulls off. The JPY is in a strange and dangerous place with the upside on US yields so limited and further QE expected from the Fed. From a fundamental standpoint, we would be very careful to buy the Yen at these levels, however technicals are giving us a different tell altogether (see USDJPY below).

It seems that ever since the ECB’s Axel Weber turned into a temporary dove and put the spotlight back on EU monetary policy, the Euro and risk-correlated trades have failed to gain any sustained, bullish momentum. In Europe today, we saw the final estimate of German Q2 GDP via flash which printed at 2.2%. The core drivers to GDP growth were fixed investment and net trade. However, market participants have never really doubted the German recovery. What is really a concern is the expanding divergence in the EU. Spreads over German yields have been widening out to levels last seen at the peak of the financial crisis.

Peripheral EU nations’ growth has failed to impress - flash estimates for Greek GDP are reasonably pessimistic and Q2 growth for Portugal and Spain are still noticeably below Germany. The EUR weakness has been partially driven by a general shift in risk sentiment and expectations for interest rate differentials which could have some legs. However, in the dog days of summer with ultra-light trading volumes, market perception could change on a dime.

In addition, a Financial Times article is suggesting that it would be “foolish” to rule out a double dip recession in the UK and that the official growth forecasts were overly optimistic. The article weakened the sterling and added general pressure to risk-correlated trades around the globe. Yield spreads continue to widen around the globe as somewhat resilient EM currencies, such as HUF and MXN, are coming under new selling pressure as fundamental data and outlooks deteriorate (Vietnams devaluation did help either). EU industrial production is on the docket today among a slew of other data, plus the much anticipated Bernanke’s Jackson Hole speech is coming up this Friday – as the trading week progresses, we wouldn’t dig our heels too deep into the sand on any one position.

Today Key Issues:

• 00:00 PLN Poland: Interest rate announcement, % Aug 3.5 exp/prior
• 06:00 EUR GER Q2 GDP – revised; prelim +2.2% q/q, +4.1% y/y.
• 08:30 GBP Jul BBA mortgage approvals and lending.
• 09:00 EUR Jun ind new orders, +1.5% m/m, +22.9% y/y exp; prior +3.8%, +22.7.
• 12:00 NOK Central Bank Governor Gjedrem speaks
• 12:45 USD Chicago Fed President Evans (FOMC non-voter) speaks
• 14:00 USD Jul existing home sales, 4730k AR exp; prior 5370k.
• 14:00 MXN Bi-weekly CPI % 2w/2w

The Risk Today:

EurUsd The prospects for the short-to medium-term are once again looking extremely bearish after Friday’s collapse through the 2-month uptrend channel. What is more, the sell-off has also taken out a vast swathe of significant supports in the space of 50 pips; 1.2776 (38.2% fibonacci retracement of 1.1876 –1.3333), 1.2762 (100-day moving average), 1.2736 (50-day moving average) AND the major 1.2732-34 support from 21 Jul /16 Aug. EURUSD has traded rather heavily since the break of its 2-month uptrend (touching a low this morning around 1.2615), but a few technical supports have now crept onto the horizon which may pause the sell-off temporarily. More specifically, the lower edge of a 1-2 week downtrend channel coincides precisely with that 1.2615 low, so some bears will be looking to take profit on shorts around here waiting for a bounce higher to reload. That certainly seems like the most attractive strategy to us, and indeed we would leave a limit order to sell just ahead of 1.2730 (21 Jul & 16 Aug support-now-turned-resistance), a level that is protected by both the 50-day moving average and 100-day moving average (1.2741 & 1.2754 respectively). There is also scope to place a further order to add to longs on a rally back up to the former 2-month uptrend (currently 1.2820) or the top of the current downtrend (currently 1.2850). On the downside the path now looks clear for a return to 1.2522 (13 Jul low) and the 2 & 6 Jul lows of 1.2483. Resistance remains at 1.2930 (12 Aug high) and 1.2990 (23.6% fibonacci retracement of 1.1876 –1.3333).

GbpUsd GBPUSD’s tentative relief rally at the start of the week has been quickly thwarted by a reversal in risk appetite; taking out a significant support at 1.5430-40 (lower edge of a recent downtrend channel and 27 Jul low) before dipping below 1.5400 in early European trading today. As we mentioned yesterday, the fact that last week’s bout of largely GBP-supportive data releases was unable to sustain any meaningful rally does skew our bias in favour of shorts as bulls start heading for the exit. Resistance levels are stacking up on the topside so look to sell some on rallies back towards 1.5440, then the upper edge of the current downtrend at 1.5625. Further pockets of supply are noted above there at 1.5715 major resistance (12 Aug high) 1.5800 (psychological resistance), and 1.5820 (11 Aug relief rally peak). Our core view is that GBPUSD is vulnerable to a lot more downside in the short-to medium-term (especially as we’re now below the 200-day moving average of 1.5469), so first targets should be the old pivot level 1.5350 (coincidentally also the 50-day moving average), then 1.5115-25 (a major support including the 50.0% fibonacci retracement of 1.4229 –1.6000 AND the 100-day moving average).

UsdJpy With the 1-month downtrend still in full force (at 85.80 now) and USDJPY unable to even come close to a decent challenge of it, we feel that the 84.73 –86.50 range looks more vulnerable than ever to a break to the downside. That range floor of 84.73-85.00 is the only support zone left (last tested 11 Aug) before a rather barren landscape below, so the risk reward profile would highly favour shorts on a break lower. It’s difficult to provide much new technical insight on that area given that the last time we saw such depths in USDJPY was back in 1995 when the pair bottomed out eventually at 79.75. Until that downside break is confirmed (and we’d like to see an hourly close as minimum confirmation), then brave intraday traders may consider some long punts buying off that 85.00 level. Should we get a last minute reprieve from the selling pressure (such as a dose of BoJ intervention), the first resistance will be 85.80 (trendline resistance), then major supply at 86.50. Above there, further rallies will be weighed by sellers back towards 86.89 (2 Aug high), 87.41 (50-day moving average), and 88.00 (psychological barrier and 28 Jul high).

UsdChf The 2-week downtrend in USDCHF has been convincingly negated by the latest surge in USD demand, and as such the pair is now on for a challenge of the former pivot level 1.0460. Our gut instinct is that 1.0460 is a robust enough area of USD-supply and that the pair will resume its downward trajectory in due course. We therefore prefer to sell on rallies around 1.0640-50 and look for a return to 1.0350 levels (setting a stop just above 1.0480). We feel that extended rallies are likely to be hindered by resistance through 1.0550 (last Friday’s high), 1.0640 (27 Jul high), and 1.0670 (200-day moving average). The price action at the end of last week that saw us break through to fresh lows of 1.0258 (19 Aug) portends to us that a move lower is on the cards, withthe downside is now exposed for a return visit to 1.0229 (19 Jan low), 1.0200 (lower edge of the 2-week downtrend) and 1.0131 (11 Jan low).