The markets have given back some of the gains seen on Wednesday in the overnight session, with the USD rallying, and global equities pulling back. All eyes are now keenly focused on today’s key interest rate decisions out from the Bank of England and European Central Bank.
MORNING SLICES
Fundys – The markets have given back some of the gains seen on Wednesday in the overnight session, with the USD rallying, and global equities pulling back. All eyes are keenly focused on today’s key interest rate decisions out from the Bank of England and European Central Bank. Both central banks are expected to cut by 50bps, with the BoE to go to 0.50% and the ECB to 1.50%. However, investors will be paying closer attention to the respective accompanying statement and press conference with more indication as to future policy. In the UK, market participants will be anticipating an announcement by the BoE on the implementation of quantitative easing, while in the Eurozone, investors will be looking for any additional hints from Trichet on the need for more rate cuts. News out from China today could also be weighing on the markets somewhat with no sign of a stimulus package just yet. China Premier Wen did however reaffirm the government’s commitment to maintain an 8.0% 2009 GDP target, while also disclosing that they would be looking to provide Yuan 5T in lending this year. The [B]Shadow MPC[/B] results showed a narrow 5-4 decision to cut rates with those voting to cut disagreeing on the size of the cut. The majority however was in-line with the 50bps forecast for today’s real decision due at 12:00GMT. On the data front, German retail sales was the standout, coming in much worse than consensus at -1.3% nearly double the -0.7% forecast, while Eurozone GDP was slightly weaker at -1.3%. In the UK, while the HBOS house price data was slightly weaker on the month, the year over year numbers were better than consensus estimates. This in conjunction with a concession from the bank that it sees “tentative signs” that activity may start to stabilize, has given Sterling and added boost with the currency outperforming on the crosses and suffering the least on the day against the greenback. Looking ahead to the North America calendar, following the BoE at 12:00GMT and ECB at 12:45GMT, key event risk comes in the form of initial jobless claims (650k expected) at 13:30GMT. In Canada, bulding permits (-5.0% expected) are due at 13:30GMT with Ivey PMI (38.0 expected) due out later at 15:00GMT. On the official circuit, the markets will once again pay close attention to Treasury Secretary Geithner at 15:00GMT, while Fed Kohn and Lockhart are due at 15:00GMT and 17:45GMT respectively.
Quant –
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Techs - EUR/USD has shown zero follow through from Wednesday’s strong bullish close with the pair retreating from the open back into the mid-1.2500’s thus far. Any hopes for even a short-term recovery will be negated unless the major can manage a break back above 1.2680 (3Mar high) today. Key levels to watch below over the coming session come in by 1.2515 (previous 2009 low) and 1.2455 (Wednesday’s 2009 low) lower down. USD/JPY continues to press higher following the break of the 3 day consolidation earlier in the week with the market eying a retest of critical psychological barriers at 100.00 into the US session. Key levels to watch above and below come in by 100.00 and 98.90. GBP/USD has shown little upside follow through from the previous day’s close with the market content on consolidating for now ahead of the morning event risk. Look for a break back above 1.4235 or below 1.4100 to provide a clearer directional bias. USD/CHF remains locked in tight multi-day consolidation, with an eventual breakout favored to the upside given the bullish form of consolidation. Thursday’s constructive price actions reaffirms with the market now looking to take out the recent range highs by 1.1890. Key levels to watch above and below over the coming session come in by 1.1890 and 1.1645 respectively.
Flows – Option barriers in Swissy at 1.1900, 1.1950 and 1.2000. Corporate and Middle Eastern accounts buying Cable. Option barriers at 100.00 in Usd/Jpy; tech accounts focus on 200-Day SMA at 100.15; exporter offers emerge by 100.00 as well. German bank and Russian names on the offer in Euro. Asian sovereign demand for Eur/Jpy.
Trade of the Day – Gbp/Chf: The cross is in the process of bouncing off of a major confluence of technical support in the form of a rising trend-line, 50-Day SMA, and 61.8% fib retracement. A fresh higher low is now sought out by 1.6375 (2Mar low) to be confirmed on a break back above 1.7490 (10Feb high). Wednesday’s bullish reversal day confirms outlook and [B]as per our recommendation from Wednesday[/B] afternoon, we bought the cross by 1.6600 for a move back towards 1.7490 over the coming days/weeks. Only back below 1.6375 negates and give reason for pause. Position: LONG @1.6600 FOR A 1.7490 OBJECTIVE, STOP @1.6290. Stops to be trailed to cost on a break above 1.6775.
Fundamental Catalyst – Any sign of stabilization within global equities should help to rally the cross. Additionally, data out of the UK has been consistently better than expected, including today’s stronger consumer confidence and PMI releases, while concerns over the state of the Swiss economy have begun to offset the lure of the Swissy safe haven status. This morning’s event risk in the form of the BoE and ECB rate decisions will no doubt impact the price. Given the better than expected data releases out from the UK over the past weeks, we will look for some sign from the BoE that we could indeed be finally close to a bottom.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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Quant section prepared by David Rodriguez, Quantitative Analyst for DailyFX.com
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