The markets have held up quite well overnight with the impressive equity performance from Tuesday helping to fuel risk appetite. However this should be taken with less than a grain of salt in the current market environment. Looking ahead, the North American calendar is light with key event risk coming in the form of the Canada house prices index at 12:30GMT, followed by the US monthly budget statement at 18:00GMT. Treasury Kashkari is is slated to testify on TARP oversight at 14:00GMT.
MORNING SLICES
Fundys - The markets have held up quite well overnight with the impressive equity performance from Tuesday helping to fuel risk appetite. Global equities are once again higher on the day, with some more upbeat news out of Europe on better than expected Hanover Re results and rumors of a positive statement from BMW helping prop sentiment. However this should be taken with less than a grain of salt in the current market environment and bears have been very distressed with the latest China surplus data which showed a dramatic plunge overnight with exports dropping by a staggering 25.7%. Also not leaving room for much optimism were UK trade numbers and Germany factory orders. UK visible trade balance was worse than expected, with the trade balance non-EU figures much weaker than consensus. This followed the earlier release of the NIESR report which showed UK growth contracting 1.8% in the three months to the end of February. In the Eurozone, Germany factory orders were devastatingly weaker showing an 8% drop in January after analysts had been looking for a -2.0% decline (previous monthly revised down as well). UK quantitative easing measures have officially kicked off on Wednesday with the Bank of England offering to buy GBP2B government bonds. In other news, IMF Strauss-Kahn has been back on the wires warning that advanced economies have been moving too slowly in eliminating bank’s toxic assets. Strauss-Kahn goes on to say that this could jeopardize global recovery prospects for 2010. The relative weakness in the Swissy today has been raising some eyebrows, with the currency suffering the most against the greenback and second most against the Euro. Some have attributed the selling to the improved risk sentiment, while others have been citing a more dovish SNB at tomorrow’s meeting. Looking ahead, the North American calendar is light with key event risk coming in the form of the Canada house price index (-0.2% expected) at 12:30GMT, followed by the US monthly budget statement (-205.4B expected) later in the day at 18:00GMT. Treasury Kashkari is is slated to testify on TARP oversight at 14:00GMT.
[B]Quant -
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Techs - EUR/USD Tuesday’s close back below the 20-Day SMA keeps the pressure on the downside for now and the market will need to close back above the 20-Day to generate any real upside potential. The 20-Day has capped rallies on a close basis for the entire 2009. Key levels to watch over the coming session come in by 1.2740 and 1.2615. USD/JPY (See below). GBP/USD continues to slide and eyes a direct retest now by the key trend lows at 1.3500 from January 23. Key levels to watch over the coming session come in by 1.3805 and 1.3655. USD/CHF has once again successfully bounced out from the sub-1.1500 range lows to trade back into the very well defined range. The 100-Day SMA has been the key here, with the indicator propping setbacks on a close basis for a majority of the multi-day consolidation. Despite the break below on Tuesday, the market was unable to establish a close below the 100-Day. Key levels to watch come in by 1.1680 and 1.1575.
Flows - UK clearer on the bid in Cable; US prime and corporates on the bid. Corporate bids in Aussie. IMM and CTA related stops above 1.1685 in Usd/Chf. Heavy stops above 1.4810 in Eur/Chf. Swiss private bank, Asian reserve manager and Russian specs bidding Euro. Large option expiries in Usd/Jpy today at 98.00 and 99.00.
Trade of the Day - Usd/Jpy: The pair has been trading with a heavier tone since peaking by 99.70 last Thursday and could be in the process of carving out an hourly head & shoulders top that would ultimately project setbacks to the previous major neckline resistance now turned support at 94.60 (5Jan high). The neckline for the hourly h&s top comes in by 96.55 and we would expect this level to be retested at a minimum over the coming sessions. The 10-Day SMA comes in by today’s current low at 98.25 and the moving average has also managed to prop setbacks for much of the rally out from the 87.15 trend lows in late January. However, this trend looks like it could be on the verge of being compromised and we will look to sell on a break back below today’s low in anticipation of an initial retest of 96.55. [B]Strategy: SELL @98.25 FOR A 96.55 OBJECTIVE, STOP @99.25. [I]Stops to be trailed to cost on a break back below 97.90. If trade triggers and 97.90 not broken, position to be closed out at NY close (5pm EST) on Wednesday. Recommendation to be removed if not triggered by NY close on Wednesday.
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Fundamental Catalyst - We are approaching year end for Japan and quite often leading into the end of the month of March there is significant flow related demand for the Japanese currency on a major repatriation of Yen. This could start to weigh on the pair, particularly at current levels with the market falling just shy of 100.00 recently and looking overdone on a technical basis. Additionally, while the correlations with risk aversion haven’t been as compelling of late, they still are worth paying attention to, especially after a day like Tuesday where equities put in big gains. In the current market environment, any follow through from big up-days in stocks has been frequently met with direct selling, and we see will look for the same pattern today, expecting that flat to lower equities will once again generate some Yen related buying on carry liquidation.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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Quant section prepared by david Rodriguez, Quantitative Analyst for DailyFX.com
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