Markets Getting Set to Digest ECB and BOE (Morning Slices)

The markets appear content on some consolidation ahead of the key morning event risk in the form of the respective ECB and BOE central bank rate decisions.


Fundys – The markets appear content on some consolidation ahead of the key morning event risk in the form of the respective ECB and BOE central bank rate decisions. While both central banks are indeed expected to leave rates on hold at 1.00% and 0.50% respectively, investors will continue to look for hints at future direction for monetary policy. This should set the tone for the day as traders take time to fully digest the outcomes. The overnight calendar was relatively light with Swiss consumer confidence coming in slightly weaker, while German manufacturing orders surprised to the upsude. Meanwhile, the Shadow MPC was out calling for a halt to the Bank of England Quantitative Easing programme with a resounding 8-1 vote. The Australian Dollar is the only major currency showing marginal gains against the buck, while the Yen is by far the weakest currency major on the day. The relative strength in Aussie has been attributed to the much stronger employment data overnight which helps to strengthen the economic outlook for the local economy. Looking ahead, the BOE and ECB are due at 11:00GMT and 11:45GMT respectively, followed by the ECB press conference at 12:30GMT. In North America, initial jobless claims (580k expected) and continuing claims (6250k expected) are out at 12:30GMT, along with Canada building permits (-3.0% expected). Chainstore sales for the US are set for release later in the morning at 15:00GMT. US equities futures point to a mixed open, while commodities are mildly offered.

Quant –

For information on the above tables, please visit our Guide to Morning Slices Quant section

Techs - EUR/USD just barely managed to put in bearish outside day on Wednesday and remains to be seen what kind of follow through we will get. The key level to watch below comes in by 1.4355 with a brak to confirm short-term top and open deeper setbacks towards 1.4200. Back above 1.4445 negates. USD/JPY tracking higher on Thursday but still locked in some directionless trade with the market needing to break above 95.90 or below 94.00 for clearer directional bias. Overall however, the trend is still bearish. GBP/USD in the process of consolidating the latest rally to fresh 2009 highs above 1.7000. The market remains well bid despite overbought daily reading but any additional rallies from here should be closely watched in anticipation of a major corrective pullback. A break below 1.6900 is now required to shift the short-term structure. Above 1.7040 exposes major 50% retracement just over 1.7300. USD/CHF not willing to breakdown down just yet after just squeaking out fresh 2009 lows by 1.0560 on Monday. The market has been consolidating back above 1.0600 to keep basing prospects intact for now. Back under 1.0560 negates while above 1.0660 accelerates gains.

Flows – Option barriers in Usd/Chf by 1.0500 and 1.0550. Swiss bank selling Usd/Cad; Canadian names on the bid. Commercial offers in Usd/Jpy. Specs and interbank traders on the bid in Gbp/Usd. Large expiry in Eur/Usd at 1.4400.

Trade of the Day – Aud/Usd: Sticking with Wednesday’s trade. The market has now retraced just over 61.8% of the multi-year high-low move in 2008 and 2009. Both daily and weekly studies are showing signs of overbought at current levels and we like the idea of looking for opportunities to establish fresh shorts in the pair if given the chance. Key psychological barriers are approaching by 0.8500 and we would have a hard time seeing any form of reversal before this level is at least cleared in some form. The current ATR resides at 120 points and this projects a potential high today by 0.8515. As such, we will look to take advantage of any rallies above the figure and into this area in anticipation of a major pullback over the coming days/weeks. STRATEGY: SELL @0.8510 FOR AN OPEN OBJECTIVE, STOP @0.8710. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON THURSDAY.

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.

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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