MORNING SLICES
Fundys – Canada employment data is much better than expected after jobs rose by 35.9k after the markets were looking for a 50k decline. The unemployment rate also held steady at 8.0% when analysts had been expecting a rise to 8.3%. This has opened a fresh wave of Cad buying with Usd/Cad dropping to fresh 2009 lows into the 1.1500’s. The markets have held up quite well overnight despite the sell-off in US equities on Thursday. The stress tests have now been officially released and the fact that there were no surprises has been taken as a positive. There haven’t been a whole lot of developments overnight but the markets are back in full swing with Golden Week coming to an end on Thursday. In Australia, the monetary policy report was released, carrying a less than upbeat tone after growth forecasts were slashed and further rate cuts were not ruled out by Stevens. However, this has still failed to weigh on Aussie as of yet with the currency trading just under its recent 2009 highs. In the UK, [B]producer prices[/B] were somewhat offsetting after input prices came in much lower than expected while output prices were higher than expected. Meanwhile, RBS announced a Q1 pre-tax loss of GBP44M with impairment losses and credit market writedowns of GBP4.9B. In the Eurozone, German economic releases were solid with both the trade balance and industrial production coming in better than consensus. Germany’s Steinbrueck was also on the wires saying that a third stimulus package of the same size as the previous ones would be unjustified. ECB Bini Smaghi was in the news echoing Trichet, that the current refi rate of 1% was not necessarily the minimum. Finally, in Switzerland, unemployment data was in line with expectations after rising to a 3 year high at 3.4%. On the commodity front, both oil and gold track higher thus far, with news that Iran plans to cut quotas at the OPEC meeting later this month seen propping. Looking ahead, things should start to heat up with all eyes on the NFP (-600k expected) and unemployment rate (8.9% expected) due at 12:30GMT. Canada housing starts (140k expected) and US wholesale inventories (-1.0% expected) are due at 12:15GMT and 14:00GMT respectively. On the official circuit, Fed Lacker is scheduled to speak at 17:00GMT on the economy, while Fed Evans speaks at 17:15GMT.
Quant –
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Techs - EUR/USD has stalled out just shy of the 200-Day SMA on Thursday but shows plenty of potential for a test and break above the longer-term SMA which comes in by 1.3465. Key levels to watch over the coming session come in by 1.3475 and 1.3245. USD/JPY attempting to press higher on Friday and looks like it wants to clear the recent consolidation highs by 99.75 which would open a direct test of psychological barriers at 100.00. Above 100.00 exposes the yearly high at 101.45 while back below 97.95 required to take pressure off of the topside. GBP/USD looks to be content on waiting for volume to pick up in the US session with the pair trading relatively close to opening levels just over 1.5000. Key levels to watch above and below come in at 1.5200 and 1.4945. USD/CHF well supported on dips to 1.1245 for now, but deeper setbacks to 1.1165 can not be ruled out with only a break back above 1.1450 to take the pressure off of the downside.
Flows – Commercial Japanese sell interest in Usd/Jpy towards 100.00. CTA stops by 134.00 in Eur/Jpy. Asian central bank offers in Usd/Cad. Good demand in Eur/Usd from sovereign accounts.
Trade of the Day – AUD/USD: Thursday’s pullback in US equities is significant for Aussie given the extremely high +0.76 correlation since the beginning of 2009. As such, we feel it might be time to start looking for a potential pullback in the outperforming commodity currency in light of the latest equity developments, with the S&P and DJIA both putting in bearish outside days on Thursday. The currency pair is now just under 70 on the daily RSI and also stalling out by the most relevant weekly moving average (we believe; see Thursday’s chart), in the form of the 50-Week SMA which now acts as former support turned resistance. As such, we think that the higher yielding Aussie could be at risk for a material pullback over the coming days and we will look to take advantage. With equity futures trading higher again though, we do not want to risk entering the trade at current levels (0.7560) or selling on a break. We would rather be patient and hope to get filled on a break to fresh 2009 highs today. A potential catalyst for the rally could come in the form of a much better than expected NFP result in the NY morning. However, ultimately, with both the equity market and the currency pair looking overbought, any rallies are not seen as sustainable. All of the good news seems to have been priced in and the markets are starting to show it. SELL @0.7645 FOR A 0.7245 OBJECTIVE, STOP @0.7845. Stops to be trailed to cost on a break back below 0.7545. Recommendation to be removed if not triggered by NY close (4pm ET) on Friday.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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Quant section prepared by David Rodriguez, Quantitative Strategist for DailyFX.com
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Joel Kruger publishes 6 daily pieces:
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Monday-Friday (between 5:30am-6:30am EST)
“Morning Slices” – Morning Overview using Fundamental, Technical, Flow, and Quantitative Analysis (Includes “Trade of the Day”).
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“Indicator of the Day” – A Feature Report that Highlights our Most Significant Technical Indicator of the Day.
Monday-Friday (between 8:00am-9:00am EST)
“Cross Country” – A Midday Fundamental Update, along with Technical Analysis of Selected Cross Rates.
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“Scandi Daily” – A Specialized Daily Fundamental and Technical Overview of the Nordic Currencies. (This report is only distributed through email. Please contact [email protected] if you would like to be added to distribution.)
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“Daily Classical” – A Daily Technical Overview of the Major Currencies.
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