The markets have been extremely thin on Friday heading into the US session, with most of Asia and Europe closed for holiday and Japan getting set for Golden Week. Investor sentiment has however managed to hold up overnight with the higher yielding currencies benefitting from the healthier risk appetite. Looking ahead, US ISM manufacturing will be the key release at 14:00GMT. We have revised our Usd/Cad buy recommendation to 1.1780.
MORNING SLICES
Fundys – The markets have been extremely thin on Friday heading into the US session, with most of Asia and Europe closed forholiday and Japan getting set for Golden Week. Investor sentiment has however managed to hold up overnight with the higher yielding currencies benefitting from the healthier risk appetite. The data over the past several hours has been encouraging with both China and UK manufacturing PMI coming in better than expected to easily offset any fall out from the slightly weaker BoE mortgage approvals which still managed to rise to a 10-month high. Meanwhile in Australia, a Reuters poll shows the RBA leaving rates unchanged this month to further bolster global macro investor confidence. This has also helped to offset the data from down under overnight as well, after the AIG PMI and commodity index were weaker. Looking ahead to the North American session, US [B]ISM manufacturing[/B] (38.4 expected) will be the key release at 14:00GMT, while Reuters/UofM confidence (61.9 expected) and factory orders (-0.6% expected) are also due at the same time. US equity futures point to a marginally higher open. On the commodity front, oil is up by nearly 1% while gold is lower by 0.5%.
[B]Quant –
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Techs - EUR/USD Thursday’s bearish close has failed to yield any bearish results thus far and it remains to be seen which direction the pair will take. Look for a break back above 1.3390 or below 1.3195 for clearer directional bias. USD/JPY continues its impressive rally and is in the process of retracing the latest 101.45-95.60 move. The market has broken back above the 61.8% retrace of this move and now eyes a break back above 100.00. Key level to watch over the coming session come in by 100.00 and 98.50 respectively. GBP/USD remains locked in choppy sideways trade with Wednesday’s break back above 1.4775 opening the door for a push back towards the 1.5000 area. Ultimately, only a clear break back above 1.5070 will shift structure while below 1.4400 is required to resume downtrend. Key levels to watch over the coming session come in by 1.4950 and 1.4755. USD/CHF failed to close below the 200-Day SMA on Wednesday and Thursday, and continues to flirt with the key longer-term SMA. Ultimately while the pair closes above the 200-Day SMA our outlook remains constructive. However, a close below will shift sentiment. The 200-Day SMA currently comes in at 1.1370.
Flows – US prime name selling Cable. US investment house buying Aussie. Reserve managers seen on both sides of Eur/Usd. Real money selling Usd/Cad; system funds watching 200-Day SMA. Asset managers buying Cad/Jpy.
Trade of the Day – Usd/Cad: Has pulled back quite sharply over the past several days with the market breaking to fresh multi-day lows below 1.1980 to just kiss the 200-Day SMA by 1.1860 thus far. While the current pullback changes the picture somewhat, the broader structure still remains constructive with the market locked in a longer-term bullish consolidation dating back to October of 2008. As such, any dips towards the bottom of the range should be used as opportunities to establish long positions in anticipation of a move back into the mid-range at a minimum. We now see the potential for a deeper pullback into Friday and have revised our buy recommendation accordingly. We will look to pick up some USDs on a dip into the previous support zone from early January (see Jan6-12 lows). Strategy: LOWER BUY TO 1.1780 FOR A 1.2270 OBJECTIVE, STOP @1.1630. Stops to be trailed to cost on a break back above 1.1830. Recommendation to be removed if not triggered by NY close on Friday. PLEASE NOTE THAT WE WILL REMAIN IN THE TRADE EVEN IF THE PAIR DOES NOT BREAK BACK ABOVE 1.1830 TODAY. NORMALLY WE WOULD EXIT ON THE CLOSE IF THE TRADE TRIGGERED BUT THE MARKET FAILED TO BREAK BACK ABOVE 1.1830. IF THE TRADE FAILS TO TRIGGER HOWEVER, WE WILL REMOVE THE RECOMMENDATION.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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Quant section prepared by David Rodriguez, Quantitative Strategist for DailyFX.com
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