FX - Major Crosses Continue to Push to Multi-Year and Record Highs

Trading volume is seriously diminishing as we head closer to the major holiday weekend and it seems as though whatever the respective trends were for specific pairs and crosses going into the lightened holiday trade, are continuing in the final days of the year. The major currencies have mostly been locked in some consolidation, while many of the crosses have been pushing to record and multi-year levels. This specifically includes the Swiss and Aussie related crosses which continue to stand out and outperform across the board.

On Tuesday we wrote…”Of all of the Aussie related crosses, Eur/Aud stands out the most to us, with the market in a virtual freefall over the past several months, continuing to post fresh multi-year lows. Of course the relative outperformance in the Australian Dollar in recent years also can be reflected through other overdone markets including; Aud/Cad, Gbp/Aud, and Aud/Nzd to name a few.”

We would however remind our readers that we are somewhat pleased to see the continued drop in Eur/Aud as it is our favorite trade for 2011. The lower it is at the start of 2011 the better. Let’s get as much of the remaining selling out of the way now!!

Tuesday’s commentary continued…”As far as other currency cross rates are concerned, it is the Swiss Franc crosses which really stand out, with both Eur/Chf and Gbp/Chf trading by record lows as relative outperformance in the Franc also dominates trade. We continue to find it fascinating that two currencies which have outperformed dramatically in recent months have been currencies that traditionally stand at opposite ends of the spectrum in terms of their respective risk profiles. It seems as though this price action can be attributed to a broader negative US Dollar sentiment which leaves the Franc as a more attractive safe haven alternative in investment portfolios, while the Aussie benefits as the most attractive risk positive option.”

The USD has actually also held up quite well, particularly against the Euro which remains under pressure as ongoing ratings downgrades in the Eurozone continue to weigh heavily on the major currency. Most recently, Fitch has placed Greece on rating watch negative, citing a “heightened probability” of a downgrade. This already follows Moody’s warning of a potential downgrade to Portugal. Meanwhile, Citigroup hasn’t helped matters after calling for a fresh wave of bank failures and sovereign defaults, unless the EU come up with a better response to the crisis. Other currencies which have been struggling a bit of late include the Pound, which has taken a hit on the awful public finance data from Tuesday, along with growing concerns that the government won’t be able to meet its deficit cutting target, and the Canadian Dollar, which has been relatively soft this weak and finding fresh offers on Tuesday from the lower than expected CPI.

On the data front, Australia’s Westpac-MI’s leading index of economic activity showed a pullback in annualized growth, while in Japan, the unadjusted trade surplus came in weaker than forecast. Also out of Japan, the government released its economic forecasts which remained subdued. The government also reiterated that decisive steps would be taken on the Yen’s rise if necessary. However, these developments have hardly factored into price action, with the Yen continuing to go nowhere.

Looking ahead, German import prices are due at 7:00GMT, followed by the more heavily watched BOE Minutes slated for release at 9:30GMT. Also not to be overlooked at 9:30GMT are the UK current account, GDP, and total business investment figures. The German IFO Business Climate Survey rounds things out for the European session at 10:00GMT. US equity futures are marginally lower in early Wednesday trade, while commodities have been tracking moderately higher.

Written by Joel Kruger, Technical Currency Strategist

If you wish to receive Joel’s reports in a more timely fashion, email jskruger@fxcm.com and you will be added to the distribution list.

If you wish to discuss this or any other topic feel free to visit our Forum Page.