The USD has been finding some bids heading into North American trade following some initial selling overnight. Sterling has been by far the weakest currency on the day, despite the on the whole better than expected employment readings out from the region. The main focus this morning has been on the downbeat BOE minutes which revealed that the central bank sees no major change in the medium-term outlook for the economy.
Fundys – The USD has been finding some bids heading into North American trade following some initial selling overnight. Sterling has been by far the weakest currency on the day, despite the on the whole better than expected employment readings out from the region. The main focus this morning has been on the downbeat BOE minutes which revealed that the central bank sees no major change in the medium-term outlook for the economy. This has weighed heavily on sentiment, while also generating to fresh bids in Eur/Gbp, with the cross rallying sharply out from the 0.8425 2009 lows and back well above 0.8500. Eur/Gbp is the biggest gainer on the day, up some 1.20%. In the Eurozone, trade balance and construction figures exceeded expectations, with the currency managing to benefit somewhat, managing to retain its sole status as the only major currency on the day to show some gains against the USD. ECB Constancio was on the wires talking currencies, saying that there was room for USD depreciation, but stopped short of calling for a major Dollar decline. In Switzerland, the ZEW survey came in much better, to put in the first positive number since September 2006. US mortgage applications have also come out and show a drop of 15.8% versus the previous week’s 7.2% decline. Elsewhere, pressure on the USD out from the BRIC persists with the China and Russia looking to promote the use of the Yuan and Rouble in bilateral trade. All major US equity indices show an open of more than 1% lower, while commodities are also back under pressure. Looking ahead, US CPI (0.3% expected) and the current account balance (-$85.0B) are due at 12:30GMT, along with Canada leading indicators (-0.6% expected) and wholesale sales (-0.5% expected). On the official circuit, all eyes will be keenly focused on Fed Chair Bernanke at 16:00GMT.
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Techs - EUR/USD consolidating overnight with price action confined to the previous daily range. Our bias favors additional weakness in light of the h&s break, with key level to watch over the coming session by 1.3935 and 1.3750. USD/JPY not doing all that much on Wednesday following Tuesday’s sharp drop, but price action favors additional weakness over the coming session with the market eyeing a retest of psychological support by 95.00. Key levels to watch over the coming session come in by 96.80 and 95.95. GBP/USD also trading within an inside day as the market remains confined to the previous daily range. Our bias favors additional weakness and an eventual retest of the potential neckline of a major double top at 1.5800. Key levels to watch over the coming session come in by 1.6510 and 1.6210. USD/CHF also confined to inside day price action, but our bias favors additional upside beyond 1.0990 towards our measured move target of the inverse h&s by 1.1400. Key levels to watch over the coming session come in by 1.0990 and 1.0820.
Flows – System funds and US prime name on the offer in Cable. Exporters on the offer in Usd/Jpy. Asian accounts offering Aussie. Asian central bank offers in Eur/Usd.
Trade of the Day – Usd/Jpy: There are simply no attractive trade set-ups on Wednesday and as usual, we will stand on the sidelines until something really compelling presents itself. Yesterday we attempted to buy the pair at 96.35, but subsequently exited the position for a small loss in Asia after showing no follow through. Today, we will once again look to take a shot, but only in the unlikely event that the market collapses to test psychological barriers at 95.00. The 95.00 level also coincides with our favorite retracement level in the form of the 78.6% fib retrace. This is the 78.6% fib retrace off of the latest major 93.85-98.90 move. Our in-house proprietary model still shows room for additional Usd/Jpy weakness, and as such we are quite content on waiting to see any existing longs flushed out before once again looking to enter a long position. Strategy: BUY @95.00 FOR AN OPEN OBJECTIVE, STOP @93.75. Recommendation to be removed if not triggered by NY close (5pm ET) on Wednesday.
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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