Interesting week this week with some good intraday action as well as some nice swing setups.
With Spain dominating the headlines recently it was nice to have our old sparing partner Greece back in the lime light. Focus this week was on the bond redemption due on Friday which could have pushed Greece over the edge, but a vote in Greek Parliament earlier in the week on further cuts and a good short-term bond auction kept them alive for the interim period.
Interestingly this week the EU really looking for details in the Troika report; the EU will then look to provide the finances and disperse the financial aid; with the delays this looks likely to happen towards the end of November/early December when short-term financing will run out. We also saw some fun comments between the IMF and eurozone members on the debt to GDP level of 120%...IMF firmly of the view this needs to be achieved by 2020 where as eurozone starting to look at 2022.
Attention in the US rapidly has moved from election to Fiscal Cliff, so before we all go diving off the cliff lets rewind and cover what this actually is.
Essentially the fiscal cliff is the effect of a number of laws which if unchanged could result in tax increases, spending cuts, and a corresponding reduction in the budget deficit beginning in 2013...right you would think this is good, but here is the kicker... if the deficit is reduced suddenly then you are likely to push the US into recession, although once through this you would be in a better space.
The debate now rages in the US on whether some of the tax cuts and reductions should continue or whether they should be changed to become more targeted The challenge with doing this is that potentially (like Spain, Greece, etc.) you just delay the situation instead of resolving it.
Ok so the key here for us is the impact on the currency markets if or when we fall off the cliff and the US goes into recession, is it a full blown risk off mode causing safe heaven strength; is it full blown US dollar weakness or is it a messy combination of both...we'll tackle that as we get closer, for now the concerns surround the debates, coupled with Greece and Spain and you get some interesting risk-off action.
Finally never to be outdone Japanese briefly made a mention and it looks like we could have more currency wars with the US, this pushed the yen lower (and really helped our USD/JPY trade). On the technical front the key this week was really around levels in correlated assets. A strong support line in the S&P500 and in the Euro caused chop on direction.
As always a quick look back at our trades this week:
- EUR/NOK short we have held since the 26th of October finally got stopped out on a reversal. In total the equivalent of 255 pips on this trade
- AUD/USD short stopped out for - 22 pips
- AUD/CHF short also stopped out for - 56 pips
- USD/CHF long provided a reversal signal in which we then closed this trade for +43 pips
- NZD/JPY or AUD/JPY, longs both offered some nice set-ups we later preferred the AUDJPY trade which we closed on Friday for +167pips; the NZD/JPY also played out well for +145 pips
- GBP/AUD short, offered an interesting but slightly weak entry for a short which reversed on pound weakness stopping for -47 pips
We carry a USD/JPY long and EUR/SEK short into next week which is already 200 pips in profit, we actually expect to see a reversal of this signal and therefore could get stopped out quickly next week.
EUR/USD
We highlighted on Thursday night the opportunity to short from the bounce and this offered a nice trade set-up which played out well on Friday.
GBP/USD
We remain in our critical zone for the pound sandwiched nicely between support and resistance. Our strategy remains the same, playing strong breakouts out of this key area or signals off of it.
AUD/USD
This pair pushed higher off of the 200-day moving average and upper channel support. Check out our week ahead post for our thoughts on Fridays setup.
USD/JPY
Nice trade off of a couple of nice set-ups which even provided a slight dip for better pricing. This pair then took off providing for some easy pips.