Daily Observations: May 08, 2013


Current Positions:

- Flat

Pending Positions:

- Short AUD/USD from 1.0150, Stop at 1.0330 (-180-pips), Target 1 at 1.0105 (+50-pips), Target 2 at 0.9980 (+170-pips), Target 3 at 0.9900 (+250-pips), Target 4 at 0.9860 (+290-pips) [final reward:risk 1.61]

- Long USDJPY from 99.95, Stop at 98.60 (-135-pips), Target 1 at 100.65 (+70-pips), Target 2 at 102.00 (+205-pips) [final reward:risk 1.52]

Typical Time Frame: 1-day to 1-week

I turned off my momentum system on Friday after the EURUSD rallied after NFPs, which seemed counterintuitive to me in light of the ECB Rate Decision the previous day and the stronger headline NFP report. For good measure - but for the AUDUSD and the NZDUSD, the other majors have been in a holding pattern the past few days.

While the AUDUSD is on the verge of a major trend shift that could see the pair below 0.9900 in the coming weeks, the sharp down move in NZDUSD was less predictable, considering it was provoking by out-of-character commentary by RBNZ Governor Graeme Wheeler.

My general feeling on the NZDUSD: it could fall towards 0.8300 but it is a sell-off to be bought. Why? The strong Kiwi is a result of the improving economy; the improving economy is stoking demand for credit, which underpins higher consumer spending and thus, future higher levels of inflation. The actual economics of New Zealand could put the RBNZ in the precarious situation of needing to implement a higher benchmark interest rate, while simultaneously desiring a lower one to weaken the Kiwi. It's not an enviable position, and given the size of the RBNZ's interventions (the most recent being N$30M), any internal measures by the RBNZ are likely to be short-lived.

The USDJPY hasn't budged the past several weeks since the initial test of 100.00, and I think that a break spurred by optimism in the US will be necessary. Otherwise, because the BoJ's near-term policy decisions are priced in, there are few irons on that fire that could weaken the Yen immediately (aside from verbal intervention). A break of 100.00, should it occur, is likely to result in a quick run higher towards 102.00 as a significant number stops are broken.

Are you new to FX or curious about your trading IQ?

As always, any other trade ideas and general macroeconomic musings can be found in the DailyFX Real Time News feed, or by following me on Stocktwits/Twitter @CVecchioFX.

I also host a weekly Live Trading Q&A in DailyFX Plus, on Tuesdays at 07:15 EST / 12:15 GMT, in which I delve deeper into my positions and thought processes behind my analyses.

--- Written by Christopher Vecchio, Currency Analyst

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