Currencies Continue to Focus on US Earnings Calendar (Morning Slices)


Fundys – Price action has been fairly quiet overnight with the markets seemingly content on consolidating ahead of the US session of trade. The two big releases this morning have been the German ZEW survey and UK inflation data. German ZEW was much better than expected on the economic sentiment side coming in at 13.0 versus a 2.0 expectation. This was the fist time the survey came in positive territory since July 2007. However, the current situation reading of the survey was slightly weaker coming in at -91.6 after the consensus has been calling for a -90.0 print. One of the ZEW economists said that there was evidence of a slowdown in the economic deterioration but also conceded that there was room for additional accommodation in monetary policy. ECB Ordonez also came out with a more accommodative tone, expressing the need for additional rate cuts while also supporting the introduction of unconventional monetary policy tools. In the UK, CPIcame in as expected with only the core showing slightly higher. This failed to materially impact price action. Meanwhile, BoE Sentance reaffirmed the key challenge for the central bank was to aid demand and avert inflation. Also on the wires was new MPC member Fisher who said, in reference to the weaker Sterling rate, that the BoE could act in the currency market if necessary. Looking ahead, all eyes will be focused on the Bank of Canada due at 12:30GMT. The majority of analysts look for an unchanged verdict at 0.50%, however, there are some who are looking for another 25bps. As far as quantitative easing measures are concerned, the central bank is not expected to unveil its plans until Thursday. Also on the calendar is Canada wholesale sales (1.0% expected) due at 12:30GMT, followed by US consumer confidence later in the day at 21:00GMT. Market participants will continue to focus on the heavily stocked earnings schedule, with the corporate results to likely heavily influence direction in the FX market. US equity futures point to a lower open, while on the commodity front, gold is slightly higher and oil is unchanged.

Quant –

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Techs - EUR/USD (See below). USD/JPY still shows well supported on dips below 98.00 and are outlook remains constructive with a push back to 104.00 ultimately favored over the coming days/weeks. For now, key levels to watch over the coming session come in by 99.45 and 97.65. GBP/USD has broken back below the 100-Day SMA and looks to be consolidating ahead of the next drop towards the 50-Day SMA in the 1.4400 area. Key short-term levels to watch above and below come in by 1.4655 and 1.4470 respectively. USD/CHF price action remains constructive with a fresh daily higher low now sought out above 1.1640 ahead of the next upside extension to 1.1835. Key levels to watch over the coming session come in by 1.1740 and 1.1640.

Flows – Offers touted in Cable by 1.4650. Real money and leveraged accounts selling Usd/Cad. Some corporate demand for Eur/Usd by 1.2900; 1.2900 and 1.3000 option expiries. Some right hand interest in the Yen crosses.

Trade of the Day – Eur/Usd: We view Monday’s break back below the 1.3000 level as significant with the move likely signaling a resumption of the broader downtrend in favor of additional weakness over the coming days/weeks to fresh multi year lows below 1.2330. However, trade is expected to remain quite choppy and volatile and selling into overdone intraday rallies is the preferred strategy. Before the breakdown on Monday, the market had been well supported on dips to 1.3090 (10Apr low) and we look for this former support to now act as resistance, offering a formidable entry spot for a playable short trade. Ultimately however, only a break back above 1.3395 would delay the bearish structure. Strategy: SELL @1.3085 FOR A 1.2835 OBJECTIVE, STOP @1.3210. Stops to be trailed to cost on a break back below 1.3035. If trade triggers and 1.3035 not broken, position to be closed out at NY close (5pm ET) on Tuesday. Recommendation to be removed if not triggered by NY close on Tuesday.

Fundamental Catalyst – We have been seeing a very strong positive correlation over the past several months between US equity prices and performance in the Euro. Higher equities bode favorably for the Euro, while lower equities imply a stronger USD. As such, Monday’s dramatic selloff in US equities should not be taken lightly with both the DJIA and S&P already taking out the previous weekly lows. This officially marks an end to six consecutive weekly higher lows in US equities and potentially warns of the onset of bear trend resumption which in turn should weigh heavily on Eur/Usd as things correlate.

Written by Joel Kruger, Technical Currency Analyst for
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Quant section prepared by David Rodriguez, Quantitative Strategist for
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