Fresh Out of the Gates, the Jockeying Begins!

As punters slowly return to their desks (your scribe included) the best way to perhaps describe this market currently is to liken it to the beginning of a horse race. As with any such race, once the steeds are sprung from the starting gates, jockeys do their best to jostle for position on the track before they hit the first bend. This is precisely what we’re seeing at the moment.

My views (on a global basis) certainly haven’t changed from what I wrote about in my last two pieces of 2011 ("Relative value is still out there, just take a look" and "My global macro take on 2012..."), but it would be remiss of me not to note that in the first week or two of the new year these views likely won’t mean much as the jockeying begins.

We started the first trading day of this new year with a broad sell off in the USD across the board and once again the AUD/USD being the biggest gainer. And as quickly as the first day was over and the second trading day began we saw more signs of consolidation and some USD buying, mainly against the EUR in this instance. I’m not reading too much into the price action this week, simply because it’s like reading tea leaves, inconclusive at best. What I will offer up by way of an opinion is that we’re likely to see this back and forth until at least mid way through next week.

The biggest catalyst next week will be the first of no doubt many more political meetings with Merkel, Monti and Sarkozy scheduled to catch up and discuss how their respective Christmases were and how they plan on tackling re-election campaigns later in the year. The market will have a keen ear for what comes out of this first meeting so as to know whether to keep selling the EUR/USD or to hold off for now and keep what’s left of their powder dry.

Regarding levels for the majors, at the moment I’m keeping an eye on only a few crosses, just to see how the broader picture develops (personally I’m keeping all my powder dry until at least next week).

In the AUD/USD, I am somewhat bullish in the very near term, and this is based solely on the price action we’ve seen so far in the last days of 2011 and first few days of this year. A legitimate upside target right now is 1.0480/1.0530, while on the downside dips into 1.0270/80 look relatively well supported for the time being. In short, this cross looks higher (to consolidate and finalise the recent move) before it comes lower again.

In the EUR/USD, it’s not an entirely dissimilar story. The lows of last year for now seem to be out of the picture but not too far away. Until such time as there is a conclusive break and close below that 1.2850 level, we’re likely to see the cross bounce around between the aforementioned and the 1.3250 pivot level. Rallies can in all likelihood be faded, but with French auctions today and more meetings next week... caution is most definitely advised.

In the Cable, the only way is up! Well at least for now. Certainly aided by the breakdown in the EUR/GBP, the Cable on its own has held well and now (like the AUD/USD) looks like it may still have another attempt at the 1.5780 previous highs before it turns around. The downside is again focused on the 1.5550 level and while we hold above here, it still looks healthy for another leg higher.

The USD/CAD is the last pair I’m looking at for now. Levels from late last year also make sense for now in that I still like the cross higher and dips into 0.9980/1.0030 very likely to be seen over the coming trading sessions allow for longer term buying opportunities once again looking to reclaim that 1.0350/1.0400 handle.