Last Friday, E$'s price action unfolded as expected as it took another dip to a low of 1.2998 from around 1.303ish and bullish divergence signal emerged. It then subsequently rebounded to a high of 1.3089 on the back of the modest US employment numbers and consolidates till now.
A few observations:
1. A rebound and staying above 1.2980/90 is short term bullish.
2. A firm close on Friday puts pressure on resistance band at 1.3070/90, clearing which should open up E$ to next resistance band at 1.3135/50.
3. If the rally on Friday evening was a retest of the trend line (see Chart 1), then E$ will stay vulnerable to breaking lower to test another trend line support at 1.2910/20 (see Chart 2).
Interestingly, CFTC's report revealed that speculative accounts have shifted to holding net long EUR positions from -2,549 contracts seen last week to +5,126 contracts as of Monday. The last time where the speculative accounts were holding net long EUR was as per 23 Aug 2011.
As USDJPY continues to push for new recent highs, the spec accounts on the contrary, had a net yen short of -80,517 contracts as per Dec 31, against prior week's net short of -85,608. This could well be the signal that USDJPY's recent rally has not reached the peak yet.
For E$ today, intraday indicator is unwinding from the o/s level and intraday momentum has turned from down to consolidation with 1.3000 to 1.3100 being the potential range (1.3135/50 expanded). Admittedly, there is a mixed bag of signals but I will lean towards selling into rallies with a higher percentage call for lower band of range to be broken this week.
For $JPY (Y88.10), still the same message. I do not think the high has been seen yet though we may see a consolidation lower from here towards 87.40/60 (short term). I expect market to test closer to Y90. In the same vein, CFTC numbers also imply scope for higher $JPY as most are looking to go short the USD. Momentum remains strong and no signs of fracture yet. Likewise, as long as there is no signs of bearish divergence, I will not make a short call.
All the best!
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| Chart 1: E$ Daily - Bullish trend compromised (circled) |
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| Chart 2: E$ Weekly - Trend line support at 1.2910/20 |
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