EUR/JPY
Let's Talk Euro Leg: A report released by U.S. investment bank Morgan Stanley indicated that HIA corporate repatriation activity looks to intensify from November 15 * December 15 in accordance with domestic accounting and tax reporting rules. As a result, further dollar bullishness looks to strengthen considerably during the period placing unwanted downward pressure on the euro zone single currency. Additionally, French riots, which have intensified and entered into its eleventh day are placing some concern over the region. Nations including the United States, Russia and the U.K. have warned tourists from entering the region, as violence has extended into the southern region of the country. Although widely regarded as a fleeting situation, further intensification may ultimately lead to economic concerns as the devastation rises.
Positives: Although suffering considerably over the past few sessions, there seems to be a slight uptick in the cross currency as we enter the Asian session. Dow Jones has released comments in line with earlier suggestions that the ECB remains more hawkish by the EU's Aluminia. However, with still further comments by Austria's Grasser and the Netherland's Zalm downplaying inflationary conditions, further selling pressure looks to confine the single currency.
Technically Speaking: Bouncing off of support at the 138.50 figure, further selling looks in store for the cross as the current action forms bull trap resemblance. Nonetheless, further near term buying momentum looks to meet a test at the 23.6 percent fib at 139.11. Previous consolidation makes this level a good support once broken to the upside, providing further upward scenarios.
AUD/JPY
Unloading Aussies: Traders pared back further positions in the Australian dollar on a myriad of selling reasons, notably the HIA repatriation and some overall downward expectations. However, what has capped the downside momentarily has been a reassessment of the statements released by the Reserve Bank of Australia suggesting a shift in current monetary policy to a tightening bias. Furthermore, bolstering the current support is a rumored option barrier at 0.7300. With a large Asian name buying in front, the current underlying spot price looks to be underpinned for the moment, ultimately lending to the AUDJPY cross currency pinpoint stop right below 86.00.
Yen Overextension: Unloading yen short positioning, traders finally created some buying pressure on the Japanese leg. Known for its currently overextended technical picture, the underlying spot has garnered some buying interest as the most recent IMM Commitment of Traders report shows a closing in on an extreme 77K yen short market position. The initiatives were in light of economic data that was far from positive as both leading economic and coincident indexes fell below previously optimistic levels.
Technically Speaking: As mentioned before, option barrier notions have capped the Australian dollar leg, providing for a subsequent pinpoint turn in the cross currency. Additionally, with the price action currently hovering above the 23.6 percent fib at 86.21, further upside potential remains for the AUDJPY. However, should a break befall the cross, a definitive test of the intrasession low would be imminent.
GBP/JPY
Interest Rate Runup: Traders took the opportunity today to pare back positions that were earlier initiated on a carry trade basis, capturing the wide interest rate differential offered in the currency pair. Additionally sparking further declines in the underlying pound currency, and ultimately the GBPJPY currency cross, were lower economic figures released earlier in the session. Both industrial and manufacturing production dipped on the month lending to the overall negative productivity that is currently plaguing the United Kingdom. Industrial production for the month of September rose 0.5 percent, reversing a 0.9 percent dip in the previous month. However, the increase was smaller in comparison to earlier estimates of 0.7 percent leading some pessimism on the underlying. This now places the annualized figure at a 1.1 percent decline. Manufacturing for the same month additionally fell, dipping 0.3 percent against consensus estimates of a rise of 0.3 percent. Contributing to an annualized dip of 0.8 percent, the manufacturing figure, coupled with the industrial component, further feeds minority expectation that Bank of England policy makers will entertain the idea of a rate cut in bolstering future figures.
Technically Speaking: Much like the latter two JPY crosses, the price action in the GBPJPY has found a pinpoint bottom heading into the Asian session. As a result, the first upside test looks to be presented at the 23.6 percent fib at 205.59. However, unlike the previous pairs, a potential resistance confluence awaits the price action. As a result, a bull trap looks to ensure with further downside pressure inevitable.
Richard Lee is a Currency Strategist at FXCM.
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