The overnight session of trade was far from quiet with the market chopping around quite aggressively ahead of the much anticipated FOMC release later in the day. The Australian Dollar is the weakest currency on the day while the Swissie and Yen are the strongest, reflective of a broader shift in sentiment and paring back of risk.
MORNING SLICES
Fundys – The overnight session of trade was far from quiet with the market chopping around quite aggressively ahead of the much anticipated FOMC release later in the day. The Australian Dollar is the weakest currency on the day while the Swissie and Yen are the strongest, reflective of a broader shift in sentiment and paring back of risk. Sentiment was initially weighed down by weaker data out of China and concerns over the world’s ability to rely on China growth given their overvalued equity markets and lower house prices. In the UK, the jobs report came out better than expected but was somewhat offset by the downbeat BoE inflation report. The Bank of England said that they may miss their 2% inflation target amidst a slower UK recovery. Nevertheless, there were some upbeat comments from BoE King which helped to stabilize price action and open some Cable buying on dips below the 50-Day SMA. The Euro was also well bid after an initial drop to the 50-Day SMA and absorbing a weaker than expected industrial production, with comments from IFO that the Euro was not seen dropping much more against the buck helping to generate fresh bids. All eyes now turn to the FOMC later today (18:15GMT) with market participants widely expecting rates to remain unchanged 0.25%, and looking for any additional clues as to the future direction of monetary policy. On the data front, US mortgage applications have come in at -3.55 versus a +4.4% previous print. The US trade balance (-$28.7B expected) is due at 12:30GMT along with Canada international merchandise trade (-0.7B expected) and new house prices (0.0% expected). The[B] US monthly budget statement /B is set for release just ahead of the Fed at 18:00GMT. US equity futures have recovered from some early setbacks and point to a slightly higher open, while commodities are mixed.
[B]Quant –
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For information on the above tables, please visit our Guide to Morning Slices Quant section.
Techs - EUR/USD reversing on Wednesday after being well supported just ahead of the 50-Day SMA. Look for any rallies to find some resistance on a push towards Monday’s 1.4220 highs, while back below 1.4085 opens the door for a fresh drop. USD/JPY has now fully retraced the parabolic price action from last Friday’s moves with the market bouncing quite impressively off of the 20-Day SMA and adhering to some rising trend-line support off of the 91.75 recent trend lows. Key levels to watch over the coming session come in by 96.65 and 95.10. GBP/USD dips below the 50-Day SMA have been unsuccessful thus far with the market bouncing back above after a short-lived drop early on. However, the pressure still remains on the downside with the key levels to watch over the coming session by 1.6530 and 1.6390. USD/CHF gains have stalled out ahead of 1.0900 and the market could be poised for some corrective pullback over the coming days with Tuesday’s bearish reversal day showing some follow through into Wednesday. Overall price action remains choppy and unpredictable within a very well defined range. Key levels to watch over the coming session come in by 1.0850 and 1.0730.
Flows – Asian central bank demand for Eur/Usd. Asian central bank demand for Aussie. Local Japanese names on the offer in Usd/Jpy hedge funds on the bid. Buy-siders also bidding Yen crosses. UK clearer selling Cable.
Trade of the Day – Eur/Gbp: While we realize it is a ways off, we like the idea of selling the cross into any major rallies on Wednesday. The market has been rallying over the past few days and it looks like more gains are in the cards over the coming session. However, the broader trend remains firmly bearish and any gains towards the 0.8700 inter-day consolidation highs are expected to be met with some good selling from existing shorts looking to build on longer-term positions. The catalyst for today’s push higher will undoubtedly come on the back of this morning’s gloomy inflation report from the Bank of England, but we contend that any Sterling fallout will not last long, with many investors already pricing in the more downbeat BOE following the previous week’s unexpected extension and increase in the central bank’s QE programme. Data out of the Eurozone has also been less than impressive and should not be forgotten with the region also infected with uncertainty. As such, we will happily look to sell on approach to 0.8700 today in anticipation of a bearish resumption. In recent days we have seen the daily ATR well exceeded with the cross putting in ranges of about 110 points and we will use this insight as a guide for our sell entry today which directly coincides with the upper Bollinger band. [B]STRATEGY: SELL @0.8680 FOR AN OPEN OBJECTIVE, STOP @0.8780. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON WEDNESDAY.
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P&L Update and Overview: Many of you have been asking for a way to better track trading results and open positions. In response to these requests and in an effort to be fully transparent, a simulated portfolio was been created in June to track and mirror all recommendations and trades. Below is a return on equity curve since inception on June 1, 2009, along with an open and closed position tracker. I am hopeful that this will make things easier for you all.
Additionally, please feel free to check out a [B]full profit and loss statement since inception on June 1, 2009[/B].
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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