Euro Stable; Sterling Underperforms; All Eyes on BOC and Bernanke (Morning Slices)

Outside of some relative weakness in Sterling, currencies were quite stable overnight, with the lack of any significant economic releases factoring into the quiet session. Looking ahead, market participants will be focused on the Bank of Canada (expected to hold at 0.25%) at 13:00GMT, along with Fed Chair Bernanke who presents the monetary policy report before the House Panel at 14:00GMT.

MORNING SLICES

Fundys – Outside of some relative weakness in Sterling, currencies were quite stable overnight, with the lack of any significant economic releases factoring into the quiet session. While the [B]UK public finances[/B] were slightly better than expected, the data failed to infuse any sense of confidence, with market participants seemingly more concerned about the recent IMF warning on the UK economy and latest BOE Bean comments in which the central banker said that the lower Sterling rate since the start of the financial crisis has helped to boost exports. The broad based Sterling weakness was quite evident on the Eur/Gbp cross rate which surged through 0.8660 stops overnight. In Switzerland, real estate prices showed a rise but any positives there were easily offset by the weaker[B] trade balance[/B]. None of this however factored into price action with the market very much focused on broader macro developments. In Japan, the DPJ’s Nakagawa was heard saying that FX reserves should be cut over time. Many traders were also focused on comments out from the Swedish central bank overnight, after the Riksbank said that there we no signs of a credit crunch in Sweden. This helped to propel the krona as the top performing currency on the day. Looking ahead, the Chicago Fed national activity index (-1.3 expected) is due at 12:30GMT. However, more attention will be given to the Bank of Canada (expected to hold at 0.25%) at 13:00GMT, along with Fed Chair Bernanke who presents the monetary policy report before the House Panel at 14:00GMT. US equity futures are unchanged, while commodities are also flat.

Techs - EUR/USD continues to hover just under the 2009 highs by 1.4340 with key levels to watch over the coming session by 1.4265 and 1.4180. USD/JPY gains stalling out after failing by the 20-Day SMA on Monday. Key level to watch over the coming session come in by 94.80 and 93.50. GBP/USD well offered thus far on Tuesday but the market is still confined to inside day price action, and a break above 1.6560 or back under 1.6265 will be required for clearer directional bias. USD/CHF trading with a heavy tone but still locked in choppy sideways trade within a very well defined range. Key levels to watch over the coming session come in by 1.0820 and 1.0630.

Flows – UK clearers selling Sterling across the board. Russian accounts bidding Eur/Usd; German names on the offer.

Trade of the Day – Usd/Cad: We are sticking to Monday’s recommendation and will once again look to buy the pair on a dip today below 1.1000. This time however, we have moved our buy entry lower by a bit with the daily ATR projecting a potential daily low by 1.0960. The 78.6% fib retracement off of the major 1.0785-1.1725 move comes in just above at 1.0985 and we like the idea of establishing longs after stops have been cleared below 1.1000, in anticipation of a major upswing. We do not see a retest of the 2009 lows by 1.0785 at this point and instead look for a higher low to carve out in the 1.0900’s ahead of an eventual break back above 1.1725 and towards 1.2000. The daily RSI is also approaching the oversold 30 level, with a test by 1.0960 today to likely coincide with an oversold reading. Strategy: BUY @1.0960 FOR AN OPEN OBJECTIVE, STOP @1.0760. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5pm ET) ON TUESDAY.

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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“Indicator of the Day”A Feature Report that Highlights our Most Significant Technical Indicator of the Day.
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“Midday Snapshot” – A Midday Fundamental Update, along with Technical Analysis of Selected Rates.
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