SYNERGY FX ALERT BY TODD DEITERICH | 09.06.15

STRONG PAYROLLS POINT TO "RISK OFF" FX TRADES

Last Friday's US Payroll data beat expectations and underscores the "divergence of monetary policy theme" which has been the cornerstone of the 10 month rally in the US Dollar. Solid growth in the US jobs market, combined with a rebound in consumer consumption and inflation, have been recurring bullet points from FED officials when discussing the shift to normalization of US interest rates. Taking into account the sharp uptick in last month's CPI inflation data, the next component to complete the FED's lift off criteria could be the US Retail Sales report this Thursday. The preliminary forecast is calling for a 1.1% increase in headline Retail Sales and a .7% increase in the core.......compared to last month's 0% and .1%, respectfully. Even though the USD gave up some of its Payroll report gains yesterday, the general uptrend in the USD remains intact. However, as the FED draws closer to officially raising the FED FUNDS rate, we feel global equity markets could trigger a "risk off" trade which could impact the USD unevenly against the G-7 pairs. Specifically, a risk off trade would see the USD gain sharply versus the EUR, AUD, CAD, NZD and GBP but not as much (or even lose ground) against the JPY and CHF. Over the last couple of weeks, global equity markets have traded lower as the reality of a shift in bias weigh on prices (see attached SP 500 chart). A deeper correction below the 2050 level would likely trigger a risk off trade over the near term. During previous risk off periods, the EUR/USD has been one of the currency pairs which has been hit the hardest. We prefer scaling into short EUR/USD above 1.1280 and adding to short positions on a break of 1.1040. The daily parabolic switch point is currently at 1.0935. With no first-tier data scheduled for the Eurozone this week, the single currency will likely be driven by developments in Greek negotiations, global equities and German Bund yields. Resistance on the hourly charts stiffens around the 1.1350 level and Synergy FX expects a break of 1.1265 to extend to the initial downside target of 1.1080 later in the week. The USD/JPY hit 125.85 during Friday's session and closed out of long positions in the 125.50 area. We expect to see some consolidation below 125.85. The trend for this pair is clearly higher but we feel a risk off trade could cap near-term gains. The AUD/USD held above .7580 on Friday but is still trending lower. With RBA chief Glenn Stevens speaking tomorrow and the unemployment report on Thursday, the AUD/USD could see some range extension on both sides. A key support level at .7750 was broken last week and will act as resistance this week. Synergy FX suggests medium-term traders can sell up to .7740 for an initial target of .7515 target and a .7935 stop.

The GBP/USD looks to be carving out a head-and-shoulders pattern with the neckline at 1.5170. We will stick with our sell recommendation from last week at 1.5340 with an initial target of 1.5180 and a 1.5475 stop. SYNERGY FX