Currencies to Digest Event Risk and Latest USD Reversal (Morning Slices)


[B]Fundys –[/B] The overnight session of trade has mainly seen some consolidation, following yesterday’s significant moves and broad based [B]USD[/B] appreciation. Market participants are also content on standing aside until digesting the results from the[B] BoE[/B] and[B] ECB[/B] rate decisions. The [B]Times Shadow MPC[/B] has however come out warning that any signs of recovery could prove to be illusory. Indeed, the [B]Bank of England[/B] has left rates unchanged at [B]0.5%[/B], while also leaving their [B]APF spending plan [/B]at GBP125B, and the focus now shifts to the European Central Bank. While most do not expect any change on rates (currently 1.0%), the attention will be fixated on any signs of additional non-standard measures and the financing of [B]EUR60B covered bonds[/B]. The ECB will also release s[B]taff macroeconomic projections[/B], which have been talked to be very weak. Eastern European woes have also captured headlines overnight with more concerns over the state of [B]Latvia[/B] weighing on sentiment. On the whole however, the [B]USD[/B] has seen some selling overnight, with some attributing the price action to a [B]WSJ [/B]article which outlines the potential for [B]China[/B] and[B] Malaysia[/B] to dump the USD in favor of trading in local currency. [B]SNB Hildebrand[/B] was on the wires overnight saying that the crisis was nearing a turning point with positive signs emerging from Asia. However, many were skeptical with these remarks, particularly in light of the concerns expressed by China over the state of their local economy, and more recently Australia, which also has taken a more reserved approach. On the data front, the key standout in the [B]Eurozone [/B]was [B]retail sales [/B]which came in as expected on the monthly and slightly better y/y. Meanwhile, [B]French unemployment[/B] was not as encouraging after coming in higher than forecast. In the [B]UK[/B], data continued to impress, after[B] Halifax house prices[/B]were much better than consensus. Looking ahead, the [B]ECB[/B] is due up at 11:45GMT, followed by [B]Canada building permits[/B] (-8.9% expected), [B]US[/B] [B]non-farm productivity[/B] (1.2% expected), [B]unit labor costs[/B] (2.9% expected), [B]initial jobless claims [/B](620k expected) and [B]continuing claims[/B] (6850k expected), all at 12:30GMT. The [B]Bank of Canada rate decision[/B] (unchanged 0.25% expected) follows at 13:00GMT, with many looking for a formal introduction of [B]quantitative easing[/B]. [B]Canada Ivey PMI[/B] (54.0 expected) then comes out just after at 14:00GMT. On the official circuit, [B]Fed Chair Bernanke[/B] gives welcome remarks at a Fed conference in Washington at 12:45GMT. US [B]equity futures[/B] point to a higher open, while [B]commodities[/B] are also bid.

[B] Quant – [/B]

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[B] Techs -[/B] [B]EUR/USD[/B] is staring to show signs of a potential top, after posting fresh 2009 highs by 1.4340 on Wednesday. However, the market will need to break below 1.1400 to officially confirm topping prospects and open the door for a more significant corrective pullback. [B]USD/JPY[/B] has been locked in some consolidation over the past several days which has taken the form of a triangle. The market has been testing triangle resistance today but has yet to fully commit to an upside break, Key levels to watch above and below remain 97.25 and 95.35. [B]GBP/USD [/B]finally showing signs of weakness after putting in a bearish outside day on Wednesday. Daily studies still reside in overbought territory and there is plenty of room for additional setbacks over the coming days. A lower top is now sought out below 1.6665. ideally in the 1.6400’s, to be confirmed on a break back below 1.6210. [B]USD/CHF[/B] is in the process of consolidating Wednesday’s impressive gains off of the 2009 lows by 1.0590. Look for additional upside over the coming days, with a break back above 1.0755 to likely accelerate. Only back under 1.0590 negates.

[B] Flows –[/B] Asian central bank and reserve manager demand for [B]Eur/Usd[/B]. Japanese bank offers in [B]Usd/Jpy[/B]. Asian central bank and reserve manager buying of [B]Aussie[/B]. Assian accounts selling [B]Cable[/B]. CTAs and leveraged accounts and real money all broad based buyers of [B]USD[/B]s.

[B] Trade of the Day – Gbp/Jpy: [/B]The bearish outside day on Wednesday, after posting fresh 2009 highs in overbought territory, now warns of deeper setbacks ahead and we would expect to see a pullback to retest the previous trend highs from early April by 151.55 at a minimum, before considering the possibility of bull trend resumption. As such, any intraday rallies back above 159.00 today are viewed as excellent opportunities to establish counter-trend short trades. A closer look at the hourly chart below shows some solid internal resistance by 159.20, with some additional resistance in the form of the 78.6% fib retrace off of the latest moves by 159.45. We will look to use this zone as an entry for our short trade today, if given the chance. [B]Strategy: SELL @159.40 FOR A 154.00 OBJECTIVE, STOP @162.10. Recommendation to be removed if not triggered by NY close (5pm ET) on Thursday. [/B]

[B]Written by Joel Kruger, Technical Currency Strategist for
If you wish to receive Joel’s reports in a more timely fashion, e-mail [/B][B][email protected][/B] [B]and you will be added to the [/B][B]“distribution” [/B][B]list.[/B]

[B]Quant section prepared by David Rodriguez, Quantitative Strategist for
To contact, e-mail [/B][B][email protected][/B] [B][/B]

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