EUR/JPY
Against German Fears Euro Still Cheers: Disappointing German trade data sparked a sell-off in the Euro in early morning trading, while bullish comments from Japanese officials provided little incentive to buy into the decline. Investors pared bets that exports would continue to drive Eurozone growth, as exports in Europe's largest economy experienced their largest decline since February 2005, dropping 1.4 percent in November versus expectations of a 1.5 percent increase. After the second consecutive month of declines, many analysts now claim that domestic demand will likely need to improve if the region is to continue its recent levels of growth. A subsequent improvement in the morning's Retail PMI readings, however, calmed bears and allowed the currency pair to establish a bottom on the day's trading. The Eurozone Retail PMI posted its strongest gain in three months, exceeding expectations to a strongly positive reading of 52.2. Likewise significant, German Retail PMI crossed into positive territory for the first time in four months on a strong gain in consumption. Such a gain allays fears that declines in exports will spell an end to recent Euro zone strength.
Technically Speaking: Eyeing down the 137.50/60 level has proven unsuccessful in the past, but this didn't deter Yen bulls. Yet, this seventh test in almost 3 months has once again proven unfruitful. After three consecutive days of gains, the Yen run has once again be suaded by the consolidation level that has contained the downside since October 17th. After all the hard work bears of this pair have made, a move higher is full of oppurtunities for Yen bidding. The first line of resistance comes around 138.80/90 where the range bottom December 27th to January 8th had held price action. A 100 pips north, the top of the same range has provided a consolidation area for a longer time.
CHF/JPY
Japanese Officials Brush Off Yen Appreciation: Much like in the EUR/JPY, Yen strength and European weakness caused a sharp decline in the CHF/JPY. While there were no significant economic releases out of Switzerland today, drops in Euro zone exports caused fears that the region's growth could slow. In the Land of the Rising Sun, Japanese officials expressed little concern over the national currency's recent appreciation. Sadazaku Tanigaki, the national finance minister, said that price action reflects underlying fundamentals and does not pose a risk to Japanese interests. As a result, traders had little reason to expect government intervention in foreign exchange markets and continued to drive the Yen higher against major currencies.
Technically Speaking: Upon making a second bid for support at 89.16, the Yen rally was once again slapped-away. The level has acted as both support and resistance since way back in August and retains its significance. The subsequent easing of the three day Yen rally is likely to bump its head on resistance at 89.80 where range consolidation exists from back in December. With the wild fluctuations this pair experiences it wouldn't be suprising to see this level probed many times but a 38.2 percent fib of the December 12th to 23rd Yen rally around 90.15 is likely to give swissie bulls a reason to stop and think. If the Yen can assemble enough momentum to take the 89.15 level once again, the three-month low around 88.50 will likely restrain exuberance.
EUR/AUD
Commodity Currency Lives Up To Title: Against mixed data from the Euro Zone, the Australian dollar rallied on solid gains in metal markets which helped trigger a momentum move on the break through key support around 1.6100. Leading the commodity-backed rally were gold prices' entrance into fresh 25-year highs. The precious metal seemingly in every investors' portfolio has been on a steady march higher after first breaking near historical levels. Retail and institutional investors as well as governments have been buying gold to hedge numerous risks - chief among them being recent greenback weakness and the reemerging bullish trend in oil prices. While the commodity is floating in seemingly untested territory, gold is not likely to stop lending its support to the Australian dollar anytime too soon. While in the short-run rebounds in the US dollar and easing in oil could draw gold down a little, the precisous metal's value as a low-risk alternative asset will make it a good candidate for Chinese diversification away from US dollars and other ventures.
Technically Speaking: After the umpteenth test of support at 1.6100, aussie dollar bidding finally pulled the pair through. The level, representing the 38.2 fib of the December 6th to January 5th Euro rally, finally gave under pressure of the changing tides of trend. Aussie bulls have unquestionably been in control of the pair since a failed attempt to take the 1.6400 support that has held the pair under control since May. The pair is likely to heed the 50.0 fib retracement of the same rally for a time, meandering back up to the former support level offered with the 38.2 fib. If the Aussie runners can take the pair before any significant retracements of the recent run, the next stop will very well be 1.5900 if the 1.6000 level is taken out. A 61.8 fib level there combines with a consolidation throughout October and November to make 1.5900 one of the strongest levels the pair has on any time frame.
Richard Lee is a Currency Strategist at FXCM.
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