The dovish FOMC minutes suggesting a possible re-invest in MBS instead of Treasuries if things gets ugly clouded the mood overnight despite better than expected US Jun existing home and consumer confidence data.

The rumor of big demand for US Dollars during month-end fixings did not have major impact as market expected overnight. EURUSD failing to break 1.2620 support with lows printing at 1.2625 caused a short squeeze during London session and pair traded up to 1.2744 and failed to take stop orders out above 1.2750.

Italian (74.2% higher 1 mnth change) and Irish ( 66% higher 1 mnth change) 5yr CDS grinding higher helping EURUSD to resist at moment against further QE winds in US.

1.2615-1.2775 range still dominates the pair while daily oscillators suggesting a possible test of weekly support at 1.2520 as long as daily closing stays below 1.2775.

Commodities heading lower on global growth concerns while Gold taking the advantage of safe heaven status and breaking the weekly resistance at 1235, suggests a further topside rally for XAU at the moment.

Canadian C/A and GDP failing to impress markets so far this week and risk aversion in the market led USDCAD testing the 1.0670 resistance and forming a double top on daily charts. A weekly close above 1.0695 increases a rally possibility up to 1.18s with a head & shoulder break out .

Good Luck All

Good morning,

Despite weak US housing starts and a disappointing Goldman Sachs earnings report, the US equity markets managed to turn around on the back of some rumours the Fed may embark on a new quantitative easing program by reducing the interest payment on excess reserves from 25bp to zero which was denied later on CNBC.

EURUSD after staying above 1.2925 in Asian Session, rallied up to 1.3029 by London opening and triggered the most of the SL odas except the ones above 1.3040. EURUSD started to trade heavily with no reason after ACB and Mid-East sold above 1.30. Breaking 1.2935 triggered further downside trading and 1.2839 was printed as o/n lows as US housing starts falling beyond the market expectations.

BoC raised the lending rate by 25 bps to 0.75% and USDCAD printed the lows at 1.0423 after trading above 1.0540.

AUDUSD rallied from 0.8715 to 0.8815 and with the collapse of EURUSD tested the post-RBA minutes lows once again before rallying 135 pips.  0.8848 the o/n highs at the moment while 0.8855/65 area holds it firmly as a strong resistance.

(Reuters) – Oil prices fell from eight-week highs on Tuesday, pressured by a stronger dollar and uncertainty about an economic recovery.

U.S. crude futures for April fell 38 cents to settle at $81.49 a barrel, after reaching a low of $80.16 a barrel earlier. In London, North Sea Brent crude oil futures slipped 56 cents to settle at $79.91 a barrel.  A stronger dollar makes dollar-denominated commodities, such as crude oil, more expensive for holders of other currencies.

USDCAD touched down to 1.0235 support overnight and bounced up to 1.0275 with good amount changing hands around 1.0260-65 area. With above the reasoning to limit further CAD gains, the daily oscillators suggesting the bearish momentum decreasing and a possible squeeze on its way with Slow Stochastic suggesting a buy starting from an oversold situation.  With 1.0250-55 bringing intraday support, 1.0225 should be bottom of the day to let USDCAD turning around and printing 1.0435 in short term. Worth to bear in mind the 55 Days SMAVG at 1.0470.

I am yet again not surprised that the market  reacted so slowly to the bad numbers such as last Friday’s  NFP  when the positioning is not in the same direction.  Big players  were  keen to save time to hand over the hot potatoes to the other risk bulls and used good China numbers over the weekend as a good reason.

Below is the story of the overnight price action.

AUDUSD dropped from 0.9305 to 0.9171 and  GBPAUD rallied from 1.7293 to 1.7615.

EURJPY got smashed from 133.82 to 131.63 and USDCAD bounced from 1.0314 to 1.0414.

Basically XAU dropped 26$ and Crude chased the tail for 2.5$ led AUD, CAD suffering while risk off theme led EURJPY getting hit as well.

I think for the rest of the day, as long as any good news dominates the session with better recovery stories, every squeeze of risk shorts must be a good chance to sell on rallies.

*Stocks, Oil Drop as Bonds Rally on Concern Recovery to Slow

Jan. 12 (Bloomberg) — The Standard & Poor’s 500 Index dropped for the first time this year while European stocks fell the most in three weeks and Treasuries rose on concern the economic recovery will slow as governments withdraw stimulus.The S&P 500 tumbled 0.9 percent to 1,136.22 at 4 p.m. in New York. Europe’s Dow Jones Stoxx 600 Index declined 0.9 percent. The 10-year Treasury note yield declined 0.10 percentage point to 3.72 percent, while the yield on the German bund slipped to the lowest level this year. The yen strengthened against all 16 major counterparts, while crude oil slumped the most in five weeks. Grains plunged in Chicago after the government said farmers harvested record corn and soybean crops. China ordered banks to set aside more reserves to cool the expansion of the world’s fastest-growing major economy, stoking concern that recovery from the global recession will falter.
“On top of that, there’s also China weighing on the market. As the global economy shows signs of strength, central banks will have to start tightening at some point.”

Post NFP last Friday, AUD and CAD rallied on the back of higher commodity prices.

With US rate hike possibilities fading away and US treasury yields dropping like a stone led greenback getting hammered as well in FX universe.

First thing on a Monday morning without checking the FX prices after a -80K NFP numbers vs.  expectations of flattish, I would sell risk trades and buy EURUSD as a knee jerk reaction but seeing S&P above 1140 and Crude Oil above 82.5$ is a bit worrying. In addition to that worry, AUD and CAD rallying on the back of higher commodity prices do not make any sense at all.

First of all, buying stocks and commodities on the back of  less chance of rate hike in US ? how about slower recovery on the back of growth prospects and less demand for energy when you produce less ? and effect on profits of companies ?

I think we may have a bumpy Monday session later on today with good chance of resistances holding in S&P and Oil which may lead a turn around in AUD and CAD on the back of risk trades getting sold off. I expect S&P breaking 1125 this week and heading down to 1085 while Oil holds it firmly at 84.40 and retraces back to 80.25.

On the back of the argument above if the rally continues in AUD and CAD,

Sell AUDUSD at 0.9285 and 0.9325, tight SL at 0.9345 and take profit at 0.9175.

Buy USDCAD at 1.0235 and 1.0195, tight SL at 1.0170 and take profit at 1.0415.

Bear in mind that:

A break of 0.9155 suggest a drop down to 0.8985 in AUD and a break of 1.0420 in USDCAD opens further room on the topside for 1.0665.