EUR/USD Parity Becoming Consensus… Short Squeeze?

KEY DATA RELEASES TODAY (GMT) :

0930 GBP Manufacturing Production m/m exp 0.2% v 0.1%
1430 USD Crude Oil Inventories exp 4.5M v 10.3M
1500 GBP MPC Member Weale Speaks
1500 GBP NIESR GDP Estimate 0.7%
1701 USD U.S. 10-Year Bond Auction 2.00|2.6
2030 USD Bank Stress Test Results

OVERNIGHT:

Another session, another low in the EUR/USD… This time, the psychological barrier of 1.0500 has been taken out this Asian session, with real money and option ­related flow leading the path lower. Traders have been lightening up bearish positions all the way down as we head into our technical support band of 1.03/­1.05 and given how momentum indicators are showing overstretched conditions. We are approaching levels and risk events where we undertake bullish views, but we have to keep stop levels tight as the trend lower remains strong. 1.0800/30 is the initial resistance level of note to watch on the topside

Domestic sentiment in Japan, with the Nikkei as a testament, remains robust, lifted by another salvo of monetary easing from a couple of CBs in Asia as well as reports of positive wage ­related developments in domestic corps (Nissan Motor Co., Ltd. (TOKYO:7201), Fuji Oil Co Ltd (TOKYO:2607) and Toyota Motor Corp Lt (OTC:TOYOF)) and M&A reports. USD/JPY’s price action has been more subdued, as market looks to have good option interest around these levels, and traders would prefer getting involved on a break of 122 above. Supports for the session is at 121.10/00 initially and 120.50, while pivot to watch topside is 122.00/10.

Weak production data coupled with sympathy to the EUR and rising election worries were enough to push GBP/USD through the psychological 1.5000 support level. Market maintains a bearish view in cable with bears firmly in control, anticipating real money to start lightening up on the currency as well. Trade balance out later, expect the breadth of market reaction to be greater on the downside if we get a weak print. 1.4800/30 remains a strong support band to watch on the downside.

Aussie Employment Data was pretty much in line at 15.6K vs.15K expected with the Unemployment rate improving to 6.3% from 6.4% expected. Aussie had a brief rally on this to 0.7667 having reached lows overnight at 0.7561. This was enough to trigger weak market stops but good supply was noted above given the overall USD trend higher and we quickly reversed back to 0.7575 although no new low was seen. We have since seen short covering trading back around 0.7650 where option interest is reported for expiries today.

PRICE ACTION OVERVIEW:

EUR: While 1.0820/40 contains upside target 1.03
GBP: While 1.5030/50 contains upside target 1.48
JPY: While 120.50/30 contains downside target 124.00
CAD: While 126.60/40 contains downside target 130
AUD: While .7690/.7710 contains upside target .72

KEY TRADES:

ANALYSIS:

EUR/USD Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks) Bearish

• While 1.0760/60 caps upside pressure remains on the downside, with 1.03 the next downside objective, above 1.0850 suggests 1.0970/90 test in broader correction
• Order Flow indicators; OBV at lows, Linear Regression and Psychology bearish, but ticking up form depressed levels to attempt midpoint tests from below
• Monitoring price action and Order Flow below 1.0840 to reset short positions targeting 1.03

GBP/USD: Short Term (1-3 Days): Bearish - Medium Term (1-3 Weeks) Bearish

• While 1.5030/50 caps upside 1.48 is the next downside objective a break only above 1.5110/30 suggests broader correction.
• Order Flow indicators; OBV ticking up from new low, Linear Regression and Psychology bearish but ticking up to attempt midpoint tests from below
• Monitoring price and Order Flow below 1.5030/50 to reset short positions targeting 1.48

USD/JPY: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks) Bullish

• As suggested double top on first retest of 2014 highs, watching for correction to 120.20/40 previous resistance to act as support and base for sustained break of 2014 highs, only below 118.50 concerns bullish bias
• Order Flow indicators; OBV continues ticking up from consolidation, Linear Regression testing midpoint from above and Psychology bullish but pulling back to test midpoint from above
• Monitoring price action and Order Flow indicators on retest of 120.00/120.50 to set longs targeting 124

USD/CAD: Short Term (1-3 Days): Bullish - Medium Term (1-3 Weeks) Bullish

• Rejection at first test of 1.28 and potential double top while 1.2550 contains downside reaction expect retest and break of 1.28 with 1.30 the next key objective, only below 1.2350 concerns upside bias
• Daily Order Flow indicators; OBV consolidating at highs, Linear Regression and Psychology bullish but pulling back
• Monitoring price action and Order Flow indicators to set long positions at 1.2550 targeting 1.30

AUD/USD: Short Term (1-3 Days): Bearish - Medium Term (1-3 Weeks) Bearish

• While .7700/20 caps upside reactions next downside objective is .75 with .72 beyond above .7750 suggests further consolidation before lower, only above .7860 concerns bearish bias
• Order Flow indicators; OBV consolidates at lows, Linear Regression pierces and Psychology bearish but ticking up from low levels
• Risk free shorts in play