Assessing USD strength

My short AUD/USD idea from $0.7790 and long USD/CAD from $1.2540 are both working nicely now as the USD continues to find buyers and subsequently oil finds sellers.

Source: Bloomberg

As a result of the move, I would look to tightening stops on AUD/USD shorts just above recent supply at $0.7750.

I also looked at short GBP/USD trades yesterday at $1.5080, although this greatly increases my exposure to the USD. As a result, I feel closing the USD/CAD trade idea at market (currently C$1.2690) could be prudent (for a profit of 150 pips or 1.2%).

The USD in general is grossly overbought and this concerns me somewhat given the two positions in play; however on current news flow it’s hard to see what causes a major reversal. Perhaps any reversal comes from the Federal Reserve, who could use the March 18 meeting to push back on USD strength. They would do so by maintaining its stance that it is prudent to maintain a ‘patient’ stance for keeping rates low. As a result, I will be keen to reduce USD exposure into the meeting, although still expect the USD to be supported.

I am also looking at EUR/JPY short positions on a slight short covering move to ¥129.80 (current level at the time of writing is ¥129.43). As you can see on the daily chart the pair has benefited greatly from the pick-up in volatility and has closed below the 25 January pivot low of ¥130.15. The key target now is the ¥128.60 (the falling trend support), where a break could see the June 2013 lows of ¥125 come into play.

Trend and momentum oscillators support this view.

Click to enlarge

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.