Trader radar

It was a volatile ride in the currency markets, with the USD at the heart of the move. Ben Bernanke’s testimony was dovish as we had thoroughly expected, however in the Chairman’s Q&A session after, he suggested the Fed could curb the pace of bond-buying in the next few meetings, data dependant. This was in-line with Bill Dudley’s comments yesterday and now the market is firmly of the belief that if data improves then the Fed could curb the pace of bond-buying in its September meeting. Momentum tools on USD/JPY look positive and we feel we 105.00 could come into play in the short term. At 09:50 we get the weekly read on what Japanese domestic funds have been doing with regards to buying foreign bonds and stocks and further flows here could see the JPY weaken.

The pair has smashed through the 1.25 barrier hitting a high of 1.2650. 1.2651 is a the 38.2% retracement of the 2007 to 2011 sell-off and a closing break above here could see the April 2011 failure high into play. Comments from the head of the Swiss central bank suggested it could look at new steps to prevent tighter monetary conditions, such as negative interest rates. Keep an eye on manufacturing PMI out of France (17:00) and Germany (17:30), with an improvement expected.

We had suggested traders would look to sell AUD/USD around 0.9870 this week, however the pair has struggled above 0.9800, with 0.9825 the high overnight. At 11:45 we get the HSBC manufacturing number with the reading expected to stay unchanged at 50.4. A figure below the key 50 level would show contraction, and thus the AUD should come under pressure.

We highlighted this name yesterday and feel the bullish break above the double-top suggests the bulls will stick with it, and we feel $12.50 is not out of reach in the short term. A local broker suggested that zircon prices set by Iluka could rise from $1230 to $1350, which is still well below last year’s price of $2080, but many will take heart from this that perhaps the worst is behind them. There is also a significant amount of short positions on this name, with talk of amounts of around $700 million, and further good news should this name squeeze higher.