Book squaring and position lightening ahead of the weeks risk events

A quiet weekend on the news front save for better Chinese PMI print and stronger AUD data also. Charles Fisher, non-voting (will be a voter in 2014) FED hawk spoke in Sydney just in time for the Asian open and sent some shivers through USD bears as he talked up his usual hawkish stance. The USD bears did however very quickly recover and we were back at roughly Friday closing levels within a heartbeat, where we have pretty much stayed until London walked in this morning. With Japan on holiday, other Asian trading was fairly subdued as a result.

German and Euro zone PMI prints came in better than consensus this morning as did UK Construction PMI. Both sets of data gave the respective currencies a small boost, but a lack of general market interest seems to be the main theme this morning. With regard the moves closing out last week… All too fast and quite frankly too far. The USD index has done all the mean reversion it needs to in my mind and for now we sit at the precipice of the continuation of the overall downward trend the USD has been on for a while now. I think the markets eagerness to factor in ECB rate cuts etc is overdone and quite frankly unjustified, if we failed to see any real dovish rhetoric from ECB officialdom when the cross was trading at 1.3850, 3 figures lower now and I don’t see any more need than back then.

With an even risk laden week heavy into the second half, today should be relatively quiet as head scratchers will start pondering whether they have the right position on, or whether they should even try and get involved at all. Personally I think there is room as well as the necessity for a squeeze and this could take USD pairs generally higher as stops get taken out from those that joined the party late last week. This piece from Nordea puts my thoughts in motion a little more eloquently perhaps.

Personally I like the idea of a higher EURUSD and AUDUSD. While the Cable also has room to the upside but perhaps not as quickly as it sits and awaits further data confirmation. Levels I’m considering are in EURUSD 1.3480 to hold today with stops above 1.3530 being obvious targets before real sellers emerge. In the AUDUSD it’s a range play with good domestic Australian demand cited into 0.9430/40 and supply at the 0.9530 area (with no real mention of stops for the time being). The Cable will struggle above 1.5970/80 on first attempt as the market seems intent on having Betty lower. I personally don’t share that opinion but fail to get too inspired about getting involved at present levels.

All in all a quiet day should be ahead of us as the market tries to get set for the ECB, BoE, NFP etc risk events ahead this week.

Helmets on and good luck out there.