Risk Off, Dollar Strong

U.S. Dollar Trading (USD) The US session saw risk appetite deteriorate dramatically overnight with the large gains in European stocks reversed and more into the close. The Asian session continued the bearish feel but the FX markets are so far not reacting dramatically to the Stocks. The US Dollar Index is still at week highs though and the EUR/USD downtrend is starting to pick up steam. US Retail Sales tonight are expected to be decent in spite of the weak company earnings season so far. This could allow the Dollar rally to extend into the weekend.

The Euro (EUR) the path of least resistance lower continued with a 40 pip move to 1.1330 at the European open today. The downside targets are back towards 1.1200 and this move is flushing out the weak Euro longs who perhaps got a little ahead of themselves on the move to 1.16. The next big move though seems still up for debate with the same fundamental reasons for a break above the 1.15 range remaining.The Sterling (GBP) Tracked the EUR/USD lower with the Bank of England a non event and the small relief rally on the back of a consensus 9-0 hold being faded with the turn in risk appetite. As we go to print the major is having a look under 1.4400 and things may speed up to the downside if risk sentiment remains negative. GBP/JPY selling was aggressive and should be watched before attempting buys on any GBP pair.

The Japanese Yen (JPY) USD/JPY has held up well with the Nikkei falling 400 points from highs only translating into a 40 pip move lower on the major. The support on dips is surprising and if we close above Y109 today then next week is shaping up for a more serious attempt higher. The decoupling of forex and stock markets could become a major theme in the months ahead if these strange moves become the normal. The Australian Dollar (AUD) was left behind in the recent Oil rally and has moved to fresh lows as risk off trade and rising china concerns made the AUD the worst performing currency in the market. Economic data out of the commodity powerhouse has been solid with the exception of the inflation data so this move lower is seen by some as a buying opportunity on the crosses. CAD did well overnight as Oil consolidated gains at mutlimonth highs but was the move below 1.2800 was reversed quickly.

Stocks Indices(DAX) enjoyed a volatile 300 pip range but ended on a distinctly negative footing and opened lower under 9800 at the start of the European session Friday. Volatility is what traders look for but the lack of rime or reason for the large intraday moves is making us work hard for the money and lowering risk whilst the market is choppy is advisable. US Stocks (DOW) Moved lower under 17700 but we are very close to the large 17600-17500 support and this will prove much harder for the bears to push through. Range trading seems likely in the coming weeks and buying dips remains the preferred strategy. for the S&P these are the 2050-2000 levels to look for buying opportunities.

Pairs to watch

EUR/USD Sub 1.13 today?

AUD/NZD Huge Support next 200 pips

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Economic Data Ahead

US April Retail Sales forecast at -0.3% vs. -0.1% m/m previously.

US April PPI forecast at 0.3% vs. -0.1% m/m previously.

By Anthony Darvall (TonyD)