Currencies View of week

Currencies: CAD outperformed due to a very strong labor report. CHF fell the most. US Treasury reported late yesterday that no country manipulates currency, but did opine that the yuan appeared undervalued.

EUR/USD. Down within uptrend

EUR/USD (1.2670) is down overnight but remains within the recent uptrend from 1.25. It is testing downtrend resistance from Dec’09.

Technicals:

• Trend: Daily higher; Weekly higher.

• Overbought/Oversold (stochastics): Daily overbought; Weekly oversold.

• Support / Resistance Levels: Support for EUR/USD lies at 1.25 (psychological), 1.2152 (Jun 29 low), 1.1877 (Jun7 low), 1.1827 (Mar’06 low), and 1.1640 (Nov’05 low). Resistance lies at 1.2718 (downtrend from Dec’09 high), 1.2722 (Jul9 high), 1.3094 (May10 high), 1.3692 (Apr12 high), 1.3818 (Mar17 high), 1.4026 (Feb3 high), 1.4194 (Jan25 high), 1.4579 (Jan13 high) and 1.4626 (Nov low).

Positioning:

• The CFTC, EUR, non-commercial, net position (-66K) deteriorated slightly, in keeping with the price action through last Tuesday.

• The risk reversal (3m, 25delta) ticked higher with spot’s overnight high. The reversal is still heavily skewed for EUR downside, but it lies in the middle of its six month range – suggesting two way price action.

• Implied Vol (3m) fell lower overnight on the rise in spot.

Cross-asset valuation: The significant correlations that EUR/USD has during the past 60 days are the 5yr yield spread (positive), the 10yr yield spread (positive), the US10yr yield (positive) and the SPX (positive).

GBP/USD. Uptrend stalling

Cable (1.5168) is down very slightly overnight, and spot appears to have stalled in the 1.51-1.52 region.

Technicals:

• Trend: Daily crossing lower; Weekly higher.

• Overbought/Oversold (stochastics): Daily overbought; Weekly oversold.

• Support/Resistance Levels: Resistance lies at 1.5241 (Jul8 high), 1.5524 (Apr15 high), 1.5816 (Feb17 high), 1.6284 (Jan22 high), 1.6458 (Jan19 high), 1.6479 (61.8% retracement of Nov to Dec decline), 1.6722 (Dec 3 high), 1.6878 (Nov16 high) and 1.7043 (Aug high). Support lies at 1.4347 (Jun8 low), 1.4239 (May19 low) and 1.3503 (Jan’09 low).

Positioning:

• The CFTC, GBP, non-commercial, net-position moderated to -34K, continuing its rise from a record low in May as spot rebounds.

• The risk reversal (3m, 25delta) is up overnight, continuing to trend higher despite the stall in spot. While it remains skewed for GBP losses, it is also in the upper end of its six month range, which suggests an overbought condition.

• Implied Vol (3mo) is down overnight to a new low since Jan.

Cross-asset valuation: The significant correlates over the past two months for GBP/USD have been the DXY (negative), EUR/USD (positive), S&P500 (positive) and crude oil (positive).

USD/CHF. Holding 1.05

USD/CHF (1.0530) rose overnight, with 1.05 continuing to hold as support. On a daily basis, the trend of lower intraday highs is compressing the price action down on 1.05.

Technicals:

• Trend: daily higher; weekly lower.

• Overbought/Oversold (stochastics): Daily oversold; Weekly overbought.

• Support/Resistance levels: Resistance lies at 1.1742 (Apr’09 high), while support lies at 1.0482 (Jul8 low) and 1.0435 (Apr1 low).

Positioning:

• The CFTC non-commercial net position slipped to -12K, and it remains among the lowest readings since 2007 and suggestive of USD/CHF weakness.

• The risk reversal (3m, 25delta) fell overnight and remains near its low since Oct’09. This market segment has abandoned its bullish USD/CHF call, but the skew is very close to a six month low, suggesting potential for a rally in spot.

• Implied Vol (3mo) is down overnight and cannot seem to escape the vicinity of multi-year lows.

Cross-asset valuation: USD/CHF has correlated mostly strongly during the past 60 days with EUR/USD (negative), the USD index (positive) and the US 10yr yield (negative)

USD/CAD. Crashing lower on strong employment

USD/CAD (1.0350) is down sharply overnight, mostly since the 7am labor report, which showed the economy gained a whopping 93K jobs (consensus 20K) in Jun.

Technicals:

• Trend: Daily higher; weekly ;lower.

• Overbought/Oversold (stochastics): Daily overbought; weekly neutral.

• Support/Resistance Levels: Resistance lies at 1.0677 (Jul5,6 high), 1.0680 (Jun high), 1.0853 (May25 high) and 1.1725 (Jul’09 high). Support lies at 1.0321 (Jun28 low), 1.02 (psychological), 1.0139 (Jun21 low), 1.0110 (May13 low), 0.9931 (Apr21 low), 0.9825 (May’08 low), 0.9712 (Feb’08 low), 0.9058 (Nov’07 low).

Positioning:

• The CFTC, non-commercial, net position fell to 19K, the bottom of the uptrending channel it has traced out in recent months.

• The risk reversal (3m, 25delta) ticked higher overnight despite the decline in spot.

• Implied Vol (3m) is down slightly, and it lies near the middle of it’s range so far in 2010.

Cross-asset valuation: In terms of other assets correlating with USD/CAD, watch the SPX (negative), DXY (positive), CRB (negative), crude oil (negative), and the 2yr spread (negative).

USD/JPY. Rebound!

USD/JPY (88.58) is up overnight and appears to be rebounding from a test of the Jul1 low yesterday as well as the sharp downtrend in place since late-Jun.

Technicals:

• Trend: Daily higher; Weekly lower.

• Overbought/Oversold (stochastics): Daily oversold; Weekly neutral.

• Support/Resistance Levels: Support lies at 86.97 (Jul1 low) and 84.83 (Nov27 low). Resistance lies at 92.89 (Jun4 high) and 94.99 (May4,5 high).

Positioning:

• The CFTC, non-commercial net position rose to 29K, above the middle of the 6-month range as speculators took profit on the move lower in spot.

• The risk reversal (3m, 25delta) rose overnight, consistent with the move in spot. The skew is still in favor of USD/JPY downside, but lies in neutral territory relative to its range the past six months.

• Implied vol (3m): fell overnight into the lower half of it’s 6-month range.

Cross-asset valuation: The correlations of USD/JPY with the US 10yr yield (positive), the US-JP 10yr (positive) spread, the S&P500 (positive), CRB (positive) and crude oil (positive) are significant.

AUD/USD. Looking to retest Jun high

AUD/USD (0.8775) is up slightly overnight, boosted by the strong Canadian labor report.

Technicals:

• Trend: Daily higher; Weekly higher.

• Overbought/Oversold (stochastics): Daily neutral; Weekly neutral.

• Support/Resistance: Technical support lies at 0.8316 (Jul1 low), 0.8067 (May25 low) and 0.7704 (Jul’09 low). Resistance for AUD/USD exists at 0.8859 (Jun21 high), 0.9389 (2010 high), 0.9406 (2009 high), and 0.9850 (2008 high).

Positioning:

• The CFTC, non-commercial net position rose modestly to 13K as spot consolidated last week.

• The risk reversal (3m, 25delta) is up overnight along with spot.

• Implied Vol (3m) is down overnight, just below the middle of its range for 2010.

Cross-asset valuations: AUD/USD has correlated most strongly with equities (S&P500, positive), commodities (CRB, positive) and USD/JPY (positive.)

NZD/USD. Looking to retest Jun high

NZD/USD (0.7067) is up overnight, making gains to recoup the late-Jun losses

Technicals:

• Trend: Daily higher; Weekly higher.

• Overbought/Oversold (stochastics): Daily neutral; Weekly neutral.

• Support/Resistance: Resistance lies at 0.7160 (Jun23 high), 0.7326 (Apr30 high), 0.7442 (Jan14 high), 0.75247 (Nov high), and 0.7635 (Oct21 high). Support lies at 0.6795 (Jul1 low) and 0.6561 (May25 low).

Positioning:

• The CFTC non-commercial, net position rebounded to 2K, but remains below the average reading for the past six months.

• The risk reversal (3m, 25delta) rose overnight, and lies just above the middle of it’s six-month range.

• Implied Vol (3m) fell overnight and is trending lower through the middle of the 2010 range.

Cross-asset valuations: The strongest correlates for NZD/USD during the past two months have been AUD/USD (positive), stocks (S&P500, positive) and commodities (CRB index, positive).