Euro Well Supported by Oil Rally to Fresh 2009 Highs (Morning Slices)

Monday’s session of trade in which the USD and Yen were the prime beneficiaries appears to have been nothing more than a consolidation session, with currencies back on the bid today and the Euro looking to fully retrace the March to April moves and test 1.3740.


Fundys – Monday’s session of trade in which the USD and Yen were the prime beneficiaries appears to have been nothing more than a consolidation session, with currencies back on the bid today and the Euro looking to fully retrace the March to April moves to test 1.3740. Global equity prices had initially opened in Asia weighed down by the pullback in US equities, but have since recovered with US equity futures now looking for a positive open. Not a whole lot of fundamental developments overnight, but the key story has been the rally in oil prices to fresh 2009 highs just shy of $60 thus far. This, despite talk once again out from Iran on the need to cut production. However, these comments have been offset by an Algerian official who said that there would be no need for OPEC to reduce production. China Ex-PBOC Yu was on the wires echoing recent sentiment from the country that there are signs of recovery. However Yu conceded that more structural reform was needed. The Pound has been the standout outperformer on the session with a slew of data released that has nearly all come in better than expected. BRC retail sales, RICS house price balance, trade balance, industrial production and [B]manufacturing production[/B] all exceeded market expectations while only DCLG house prices marginally disappointed. Meanwhile in the Eurozone, German CPI was in line with estimates, while wholesale prices were slightly higher. Looking ahead, Canada international merchandise trade (0.5B expected) and the US trade balance (-$29B expected) are due at 12:30GMT, followed by economic optimism (51.0 expected) at 14:00GMT and the monthly budget statement (-$20Bat expected) at 18:00GMT. ABC consumer confidence comes out later in the day at 21:00GMT. On the official circuit, Fed Lockhart is set to speak at 12:20GMT, just ahead of Fed Rosengren at 12:30GMT. Finally, Treasury Secretary Geithner will be attending a social security news conference at 18:30GMT.

Quant –

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Techs - EUR/USD (see below). USD/JPY once again rolling over and looks to be carving out a right shoulder of a head & shoulders-like topping pattern. The break below 97.15 on Tuesday now exposes deeper setbacks to next support by 95.60-96.40. Only back above 98.85 delays. GBP/USD continues to chop around but remains very well supported on dips with a likely retest now seen of the 2009 highs by 1.5375 over the coming session. Only back under 1.5075 would delay constructive structure. USD/CHF well supported on dips ahead of critical psychological barriers at 1.1000 for now. However, the inter-day structure is still grossly bearish and only a break back above 1.1335 would be required to delay. Key levels to watch over the coming session come in by 1.1110 and 1.1020.

Flows – Directional and retail offers in Cable; UK clearer, IMM account and real money on the bid. Asian central bank offers in Usd/Cad. Japanese bids in Gbp/Jpy. Russian specs and other Eastern Europeans buying Euro; Asian central bank offers.

Trade of the Day – Eur/Usd: At this point, a full retracement of the 1.3740-1.2885 March to April move is to be expected and we look for a retest and break above 1.3740 over the coming hours. However, after stops have been cleared above 1.3740, scope for additional gain is limited with the market expected to stall out ahead of 1.3800. Daily studies are approaching overbought and we view any rallies towards 1.3800 as a good short-term sell opportunity. Strategy: SELL @1.3795 FOR A 1.3560 OBJECTIVE, STOP @1.3925. Stops to be trailed to cost on a break back below 1.3745. If trade triggers and 1.3745 not broken, position to be closed out at NY close (5pm NY time) on Tuesday. Recommendation to be removed if not triggered by NY close on Tuesday.

Written by Joel Kruger, Technical Currency Strategist for
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Quant section prepared by David Rodriguez, Quantitative Strategist for
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