February 23

Market Rangers 2

Currency markets have once again settled into impressively quiet ranges. Our last “Market Rangers” post featured eerily similar set ups: annoying ranges across most of the major pairs even the the midst of what seems like a busy period for fundamental news. Europe is somewhere close to a Greek deal, US data is positive but mixed and commodities have bounced off January lows. All three of these developments seem to have stalled the overwhelming trends of USD strength along with weakness in the Euro and Oil. At times like this it is key to focus on what the levels are, and what can shake us out of these ranges.

EURUSD: 1.1280-1.1450

This range has been in place since the third week of January, making it about a month old at this point. Price has been batted around between the levels by Greek headlines and US Economic data, with nothing be able to push us in either direction. Positioning in EURUSD is near all time highs, but  I must stress that unprecedented times like these likely call for even bigger short EURUSD positions given the massive monetary policy divergence underway. As time has gone on, it seems like liquidity is drying up inside the range as the whipsawwing from one end to the other becomes more common on an intraday basis. Wait for a break to go in.

USDJPY: 116-121

This range started in mid November, making it the longest standing range in currency markets at the moment. It has become customary for USDJPY to make long bullish runs, then settle in 3-6 month consolidation ranges before the next big run.  Price tried to break the range higher after the January payrolls data was released, but the Bank of Japan ambushed markets on February 12th with relatively hawkish comments on the Yen. This forced the pair back down into the range, taking Yen shorts to near two year lows. This pair is driven by US yields, which at (most) times are correlated to global risk sentiment. Whichever way yields go this pair will follow.

USDCAD: 1.24 Triangle

1.24 has become a huge level where price has bounced now may times over the last month, making lower highs on the 4h Hour charts. USDCAD is sandwiched between further expectations of a rate cut in Canada, but a rallying oil price. I have noticed in the last week that US oil production numbers don’t seem to be declining along with rig counts, so maybe there is another leg down due in oil. This would will have a significant impact on Canada’s economy. Retail sales missed estimates last week, and CPI this week will likely give the BoC word on whether to cut again in March.

AUDUSD: 0.7650-0.7850

Aussie has been rangebound for nearly a month now as the RBA’s surprise rate cut last month saw traders try to push price below 0.7650 but they were quickly whip  sawwed out by a huge short squeeze the following day on February 3rd. Since then price has bounced between the range on US data and continued deterioration of the Chinese economy. We have China HSBC PMI this week which should give more clues on whether the China manufacturing sector remains in contraction.

It is worth saying that yields have jumped in the last couple of weeks, and all these ranges must now be viewed in the context of rising global yields. If this sharp move in yields continues, it could shake us out of these levels.