AUD was also buoyed by a strong trade report

Currencies: In classic “risk on” form, AUD and NZD outperformed, while JPY lagged. AUD was also buoyed by a strong trade report.

EUR/USD. Holding above 1.25

EUR/USD (1.2582) is up overnight, holding onto gains from the sharp rally last Thursday. Some ascribed that move to a huge short EUR / long gold position unwind, while others indicated that it derived from an increased focus on the downside risks for the US economy. Still others noted that the Euro Zone dodged bullets last week with Spain issuing debt and the ECB’s 1yr loan facility expiring without incident. Bloomberg has published a feature article this morning highlighting various bank strategists who believe that EUR/USD could still trade towards 1.15 this year as debt problems and austerity weigh on the European currency.

Technicals:

• Trend: Daily higher; Weekly higher.

• Overbought/Oversold (stochastics): Daily overbought; Weekly oversold.

• Support / Resistance Levels: Support for EUR/USD lies at 1.25 (psychological), 1.2152 (Jun 29 low), 1.1877 (Jun7 low), 1.1827 (Mar’06 low), and 1.1640 (Nov’05 low). Resistance lies at 1.2612 (Jul2 high), 1.2672 (May 21 high), 1.3094 (May10 high), 1.3692 (Apr12 high), 1.3818 (Mar17 high), 1.4026 (Feb3 high), 1.4194 (Jan25 high), 1.4579 (Jan13 high) and 1.4626 (Nov low).

Positioning:

• The CFTC, EUR, non-commercial, net position (-66K) deteriorated slightly, in keeping with the price action through last Tuesday.

• The risk reversal (3m, 25delta) ticked higher on spot’s hold above 1.25.

• Implied Vol (3m) slipped overnight on the back of spot’s recent gains.

Cross-asset valuation: The significant correlations that EUR/USD has during the past 60 days are the 5yr yield spread (positive), the 10yr yield spread (positive), the US10yr yield (positive) and the SPX (positive).

GBP/USD. The rewards of austerity

Cable (1.5192) is up overnight, building on its inexorable uptrend since May when the push for fiscal consolidation picked up momentum.

Technicals:

• Trend: Daily lower; Weekly higher.

• Overbought/Oversold (stochastics): Daily overbought; Weekly oversold.

• Support/Resistance Levels: Resistance lies at 1.5229 (Jul2 high), 1.5524 (Apr15 high), 1.5816 (Feb17 high), 1.6284 (Jan22 high), 1.6458 (Jan19 high), 1.6479 (61.8% retracement of Nov to Dec decline), 1.6722 (Dec 3 high), 1.6878 (Nov16 high) and 1.7043 (Aug high). Support lies at 1.4347 (Jun8 low), 1.4239 (May19 low) and 1.3503 (Jan’09 low).

Positioning:

• The CFTC, GBP, non-commercial, net-position moderated to -34K, continuing its rise from a record low in May as spot rebounds.

• The risk reversal (3m, 25delta) is up overnight with the move higher in spot, but it remains skewed for GBP losses.

• Implied Vol (3mo) is down overnight, and it has fallen to a low since April.

Cross-asset valuation: The significant correlates over the past two months for GBP/USD have been the DXY (negative), EUR/USD (positive), S&P500 (positive) and crude oil (positive).

USD/CHF. Holding above 1.05

USD/CHF (1.0623) fell overnight. A sharp fall was short-circuited when Swiss CPI for Jun came in weaker than expected (-0.4%m/m, consensus -0.1%).

Technicals:

• Trend: daily lower; weekly lower.

• Overbought/Oversold (stochastics): Daily oversold; Weekly overbought.

• Support/Resistance levels: Resistance lies at 1.1742 (Apr’09 high), while support lies at 1.0564 (Jul6 low) and 1.0435 (Apr1 low).

Positioning:

• The CFTC non-commercial net position slipped to -12K, and it remains among the lowest readings since 2007 and suggestive of USD/CHF weakness.

• The risk reversal (3m, 25delta) rose overnight and appears to be stabilizing along with spot. This market segment has largely abandoned its bullish USD/CHF call.

• Implied Vol (3mo) is down overnight and cannot seem to escape the vicinity of multi-year lows.

Cross-asset valuation: USD/CHF has correlated mostly strongly during the past 60 days with EUR/USD (negative), the USD index (positive) and the US 10yr yield (negative)

USD/CAD. Also holding above 1.05

USD/CAD (1.0696) is down overnight, but still holding above 1.05.

Technicals:

• Trend: Daily higher; weekly ;higher.

• Overbought/Oversold (stochastics): Daily overbought; weekly neutral.

• Support/Resistance Levels: Resistance lies at 1.0677 (Jul5,6 high), 1.0680 (Jun high), 1.0853 (May25 high) and 1.1725 (Jul’09 high). Support lies at 1.02 (psychological), 1.0139 (Jun21 low), 1.0110 (May13 low), 0.9931 (Apr21 low), 0.9825 (May’08 low), 0.9712 (Feb’08 low), 0.9058 (Nov’07 low).

Positioning:

• The CFTC, non-commercial, net position fell to 19K, the bottom of the uptrending channel it has traced out in recent months.

• The risk reversal (3m, 25delta) slipped overnight with the softness in spot.

• Implied Vol (3m) is up slightly, and it lies near the middle of it’s range so far in 2010.

Cross-asset valuation: In terms of other assets correlating with USD/CAD, watch the SPX (negative), DXY (positive), CRB (negative), crude oil (negative), and the 2yr spread (negative).

USD/JPY. Consolidating recent collapse

USD/JPY (87.92) is up overnight, consolidating after trading to a low since December last week. Spot has fallen to a level that it could begin to attract the attention of Japanese policymakers, and speculators are likely not to want to push it much further.

Technicals:

• Trend: Daily higher; Weekly lower.

• Overbought/Oversold (stochastics): Daily oversold; Weekly neutral.

• Support/Resistance Levels: Support lies at 86.97 (Jul1 low) and 84.83 (Nov27 low). Resistance lies at 92.89 (Jun4 high) and 94.99 (May4,5 high).

Positioning:

• The CFTC, non-commercial net position rose to 29K, above the middle of the 6-month range as speculators took profit on the move lower in spot.

• The risk reversal (3m, 25delta) rose overnight, consistent with the move in spot. The skew lies in neutral territory relative to its range the past six months.

• Implied vol (3m): fell overnight and lies below the middle of it’s 6-month range.

Cross-asset valuation: The correlations of USD/JPY with the US 10yr yield (positive), the US-JP 10yr (positive) spread, the S&P500 (positive), CRB (positive) and crude oil (positive) are significant.

AUD/USD. Consolidating recent losses

AUD/USD (0.8485) is up overnight and continuing to consolidate after the losses in late-June.

Technicals:

• Trend: Daily lower; Weekly higher.

• Overbought/Oversold (stochastics): Daily neutral; Weekly neutral.

• Support/Resistance: Technical support lies at 0.8316 (Jul1 low), 0.8067 (May25 low) and 0.7704 (Jul’09 low). Resistance for AUD/USD exists at 0.85 (psychological), 0.8859 (Jun21 high), 0.9389 (2010 high), 0.9406 (2009 high), and 0.9850 (2008 high).

Positioning:

• The CFTC, non-commercial net position rose modestly to 13K as spot consolidated last week.

• The risk reversal (3m, 25delta) is up overnight along with spot.

• Implied Vol (3m) is down overnight, above the middle of its range for 2010.

Cross-asset valuations: AUD/USD has correlated most strongly with equities (S&P500, positive), commodities (CRB, positive) and USD/JPY (positive.)

NZD/USD. Consolidating

NZD/USD (0.6931) is up overnight, Consolidating from last week’s collapse.

Technicals:

• Trend: Daily lower; Weekly higher.

• Overbought/Oversold (stochastics): Daily overbought; Weekly neutral.

• Support/Resistance: Resistance lies at 0.7160 (Jun23 high), 0.7326 (Apr30 high), 0.7442 (Jan14 high), 0.75247 (Nov high), and 0.7635 (Oct21 high). Support lies at 0.6795 (Jul1 low) and 0.6561 (May25 low).

Positioning:

• The CFTC non-commercial, net position rebounded to 2K, but remains below the average reading for the past six months.

• The risk reversal (3m, 25delta) rose overnight, consistent with the rebound in spot.

• Implied Vol (3m) declined overnight back towards the middle of the 2010 range.

Cross-asset valuations: The strongest correlates for NZD/USD during the past two months have been AUD/USD (positive), stocks (S&P500, positive) and commodities (CRB index, positive).