Price action in the majors has been relatively stable overnight with the markets seemingly content on some consolidation ahead of a G20 meeting on Thursday that is generating a lot of attention, in light of the global turmoil and need for a unified solution. Looking ahead, key event risk comes in the form of ISM manufacturing data due at 14:00GMT. Initially, ADP is due at 12:15GMT, while US pending home sales and construction spending are also due at 14:00GMT.
MORNING SLICES
Fundys – Price action in the majors has been relatively stable overnight with the markets seemingly content on some consolidation ahead of a G20 meeting on Thursday that is generating a lot of attention, in light of the global turmoil and need for a unified solution. Despite the differing opinions on just how to solve the global financial crisis, there has been an aggressive commitment by a number of country heads and officials for a productive meeting. Obama, Brown, Merkel, Sarkozy, Trichet and Blanchflower are just some of the names that have been talking tough over the past several hours on the need for a formal solution. On the data front, the much stronger than expected UK PMI has made Sterling the outperformer on the session, while much weaker German retail sales, a disappointing Eurozone PMI and higher than expected Eurozone unemployment have all been weighing on the Euro. This has been reflected in the Eur/Gbp cross rate which is well offered all day. Elsewhere, Swiss PMI was slightly weaker, while Australia retail sales came in much worse than expected. In New Zealand, Kiwi was weighed down early on following the dovish comments from RBNZ Governor Bollard who said that he was concerned with the recent “unwarranted” rise in longer-term rates. Global equities are back under pressure with US equities also pointing to a lower open. In commodity price action, oil is now well below $50 and down some 2.50% on the day, while gold is 1.00% higher. Looking ahead to the North American session, key event risk comes in the form of ISM manufacturing data (36.0 expected) due at 14:00GMT. Initially, ADP (-663k expected) is due out at 12:15GMT, while US pending home sales (0.0% expected) and construction spending (-1.9% expected) are also due out at 14:00GMT. On the official circuit, more comments are sure to emerge pre-G20, while Fed Pianalto is slated to speak at 17:00GMT.
Techs - EUR/USD consolidating the latest round of setbacks. There are compelling arguments in the bull and bear camps from here, so we will look to 1.3345 and 1.3115 as the key level to watch over the coming session. USD/JPY (See below). GBP/USD showing some relative strength today with the pair breaking back above Tuesay’s high and now looking to trade to the 10-Day SMA by 1.4450. Ultimately, the overall structure remains grossly bearish with a break back below 1.4275 to accelerate declines. USD/CHF has found some solid resistance in the form of a confluence of moving averages (20/50/100-Day SMAs) just over 1.1500 to open the latest pullback into the 1.1400’s. However, any setbacks should be limited to the 1.1345 area ahead of renewed strength beyond Monday’s 1.1550 highs. Key levels to watch come in at 1.1550 and 1.1345.
Flows – Middle eastern names bidding Eur/Usd; Asians on the offer. Large institutionals buying Cable. Real money, model and macro funds on the offer in Eur/Gbp.
Trade of the Day – Usd/Jpy: Setbacks were well supported on Monday with the market initially dropping down to 95.95 but unable to extend any further before sharply reversing back above 98.90 to just over the 200-Day SMA at 99.25 on Tuesday. There is solid internal range support by 97.00 and we continue to favor an eventual break of the current consolidation over the coming sessions through the 2009 highs at 99.70 and above 100.00, towards the major 87.15 double bottom objective by 104.00. While there are really no compelling risk/reward set-ups at current levels, we will look for opportunities to buy into intraday pullbacks. Based on the current 99.50 Wednesday high, the ATR (“Average True Range) projected low comes in by 97.75 which directly coincides with the 20-Day SMA. As such, any dips to here are viewed as a compelling buy opportunities. Strategy: BUY @97.75 FOR A 100.00 OBJECTIVE, STOP @96.75. Stops to be trailed to cost on a break back above 97.15. If trade triggers and 97.15 not broken, position to be closed out at NY close (5pm EDT) on Wednesday. Recommendation to be removed if not triggered by NY close on Wednesday.
Charts created using Intellichart – Prepared by Joel Kruger
Fundamental Catalyst – Price action in the pair is usually less tied to any specific Japanese fundamentals and more correlated to developments on the global macro scene. However, traditionally the Yen finds decent bids in the month of March on year-end repatriation. With this now behind us, we could start to see the pair better bid over the coming days.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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