With the daily RSI approaching the overbought 70 reading in Cable, we will be looking to establish a counter-trend short on any rallies back above the 200-Day SMA on Wednesday. Looking ahead, Canada leading indicators (-1.0% expected) are due at 12:30GMT, with the Fed Minutes set for release later in the day at 18:00GMT. US Treasury Secretary Geithner testifies at 13:30GMT in the Senate hearing on TARP.
MORNING SLICES
Fundys – Canada CPI has just come out with earlier rumors of weak data being confirmed after the headline number came in at -0.1% m/m when analysts had been looking for a +0.2% print. Core CPI data was however in line with consensus estimates. There seems to be more room for upside in the Euro today with many market participants focused on a retest of the key 1.3740 trend highs above. The main data overnight has come out of the UK with the release of the BoE Minutes showing a unanimous 9-0 vote to extend quantitative easing measured by GBP50B, with some members even looking for a more generous extension. The BoE also released its monthly assessment of business conditions which showed that the deterioration in the market had eased somewhat. Also out from the UK was the [B]CBI industrial trends[/B] data which showed a slight improvement. In the Eurozone, German producer prices were much worse than expected after coming in at -1.4% versus and expectation for a flat reading, while in Switzerland the ZEW improved significantly from the previous month. In Japan, BoJ Shirakawa warned of the negative currency implications of a prolonged low interest rate policy, while FinMin Yosano offered some stabilizing remarks on the economy. The Australian Dollar has been the underperformer on the day, with earlier comments from PM weighing after Rudd said he saw further job losses and anticipated a difficult period for the economy for the rest of 2009 and 2010. Although the greenback was not seen benefitting, it was interesting to see that the UAE formally announced that it would maintain its USD PEG and would withdraw proposals for a unified Gulf currency. Looking ahead, Canada leading indicators (-1.0% expected) are due at 12:30GMT, with the Fed Minutes set for release later in the day at 18:00GMT. US Treasury Secretary Geithner testifies at 13:30GMT in the Senate hearing on TARP.
Techs - EUR/USD pressure remains on the topside for now and we still see scope for additional gains back to retest the key trend highs at 1.3740 over the coming session. Key levels to watch come in by 1.3740 and 1.3530. USD/JPY despit the latest minor pullback off of the 96.70 Tuesday recovery highs. The pair remains very well supported on dips to the 100-Day SMA and bottom of the Ichimoku cloud. Key levels to watch over the coming session come in by 96.70 and 95.35. GBP/USD (see below). USD/CHF back under pressure since recovering to 1.1270 on Monday and contemplates a retest of the recent trend lows by 1.0975. Key levels to watch over the coming session come in by 1.1165 and 1.1040.
Flows – Semi-official offers in Cable; Asian central bank buying. Semi-official offers in Euro; Russian and Middle Eastern bids. Asian account selling Usd/Cad. Japanese investment house buying Aud/Jpy.
Trade of the Day – Gbp/Usd: With the daily RSI approaching the overbought 70 reading, we do not see gains extending much further and will be looking to establish a counter-trend short on any rallies back above the 200-Day SMA which currently comes in at 1.5555. The pair does have a tendency to overshoot its target and as such, selling directly at the 200-Day SMA today is not recommended. Instead, we look for any topside failure to coincide with a retest of the key trend highs in the Euro by 1.3740. We will incorporate our ATR (Average True Range) analysis to isolate our entry point today, with any moves beyond our entry seen limited. Strategy: SELL @1.5655 FOR A 1.5265 OBJECTIVE, STOP @1.5855. Stops to be trailed to cost on a break back below 1.5605. If trade triggers and 1.5605 not broken, position to be closed out at NY close (5pm NY time) on Wednesday. Recommendation to be removed if not triggered by NY close on Wednesday.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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