The latest RBNZ rate decision and much stronger than expected Australia employment change data have not been absorbed as well by the markets into Thursday, with both developments somewhat deceptive. The Euro has been weighed down by weaker data and comments from a French official that the Europe would decline to enact additional stimulus. Looking ahead to the North American calendar, key event risk comes in the form of US retail sales.
MORNING SLICES
Fundys - The latest RBNZ rate decision and much stronger than expected Australia employment change data have not been absorbed as well by the markets into Thursday, with both developments somewhat deceptive. At a closer look, there is some reason for concern with the RBNZ decision to not cut by 75bps, and accompanying less dovish than expected statement from Governor Bollard. Some analysts feel that more accommodation was needed and this now leaves the door open to a more dramatic deterioration within the local economy, with money still being way too expensive. Nevertheless, interest rate expectations have been cut in halffollowing the rate decision with the market now pricing in 50bps of cuts over the next 12 months. In Australia, indeed the headline jobs data was much better than expected but with full time jobs dropping a dramatic 53.8k, there was plenty of reason for worry. Moving into the Eurozone, PPIdata was much softer than expected which did not help the Euro’s cause, while German industrial production was much weaker, to more than offset an upward revision from the previous month, coming in at -7.5% after analysts had been looking for a -3.0% drop. Also weighing on the Euro today were comments out from a French official that Europe would decline to enact additional stimulus. This has become a serious point of contention between the US and Europe. BoE Besley was interviewed on the latest introduction of quantitative easing by the UK and said that increasing the money supply is an important weapon against the threat of deflation. However, Sterling still showed relative weakness, with an article in the Daily Telegraph shaking confidence after stating that UK house priceA could fall further by 55%. Swissy has been getting some attention today with the currency outperforming against the Euro following some M&A related news of Roche’s successful bid for US pharmaceutical Genentech. While the upcoming SNB decision at 13:00GMT will be watched closely, the fact that the details of the impending 0.25bp cut was already accidentally disclosed yesterday, should prove to mitigate any volatility upon the official release. Looking ahead to the North American calendar, key event risk comes in the form of US retail sales (-0.5% expected) due at 12:30GMT. Treasury Secretary Geithner will also be testifying to the Senate Budget Committee on the 2010 budget at 14:00GMT.
Quant -
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Techs - EUR/USD has finally closed above the 20-Day SMA for the first time since early January. Now we will have to see if the market can sustain a break above. Next major resistance comes in by 1.2995 (23Feb high), with key levels to watch over the coming session at 1.2905 and 1.2730. USD/JPY has come back under some intense pressure since breaking back below the 10-Day SMA and clearing sell-stops below 0.9790 and then 96.55 on Thursday. This has triggered an hourly head & shoulders top formation which now projects additional setbacks towards the former 2009 high/major double bottom neckline at 94.60. GBP/USD has shown little follow through from Wednesday’s bullish close but has managed to break a string of consecutive daily lower highs. Overall, a retest of the 1.3500 trend lows is favored but we do not rule out the possibility for some corrective rallies over the coming days. Key levels to watch over the coming session for clearer directional bias come in at 1.3925 and 1.3725. USD/CHF has once again successfully bounced out from the sub-1.1500 range lows to trade back into the very well defined range. The 100-Day SMA (1.1540) has been the key here, with the indicator propping setbacks on a close basis for a majority of the multi-day consolidation. Key levels to watch today come in by 1.1605 and 1.1495.
Flows - Tech related selling Usd/Jpy; Swiss bank on the bid. Directional model related selling of Cable. Large repatriation linked sell interest in Eur/Jpy. Double-no-touch in Aussie at 0.9280-0.9560 with a large payout slated to expire March 24.
Trade of the Day - Eur/Gbp: The cross has broken to fresh six-week highs and continues to surge reaching 0.9300 thus far ahead of the latest minor pullback. However, while below the 0.9520 (26Jan high) 2009 lower top, we continue to look for opportunities to establish short positions in anticipation of a resumption of the broader decline off of the 0.9805 life-time highs from late December 2008. The next key levels to watch above come in by the 0.9330-60 area which represent the 78.6% fib retracement off of the 0.9520-0.8635 move and 61.8% fib retracement off of the 0.9805-0.8635 move. Any evidence of stalling in this area should be used as an opportunity to re-establish short positions. Daily stochastics are already overbought and a move to 0.9330-60 will most likely put the RSI at or close to 70, which also bodes well for a lower top and market reversal. The daily “Average True Range” (ATR) for the cross is 145 pips which now projects a potential high on Thursday right into our fib zone at 0.9355. We will use this level as our entry point. Strategy: SELL @0.9355 FOR A 0.8850 OBJECTIVE, STOP @0.9555. Stops to be trailed to cost on a break back below 0.9300. If trade triggers and 0.9300 not broken, position to be closed out at NY close (5pm EST) on Thursday. Recommendation to be removed if not triggered by NY close on Thursday.
Fundamental Catalyst - We continue to see an overvalued Euro rate at current levels with a central bank that has not effectively confronted and dealt with the current financial crisis. More deterioration within the Eurozone is anticipated and we believe this has not been fully priced into the markets. Meanwhile, the situation in the UK is by no means rosy, but does show signs of bottoming with various data starting to come in not as bad as expected; the first signs of some form of a bottom. It is also clear that in the current market environment, central banks need to be more creative in their approach to monetary policy, with money still so tight despite the lower rates. The BoE has definitely been aggressive with their accommodative approach and has now introduced a quantitative easing policy which should prove to stimulate the economy in the coming months.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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[/B]Quant section prepared by David Rodriguez, Quantitative Analyst for DailyFX.com
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