Although the Euro is relatively unchanged overnight, there was definitely some interesting price action elsewhere with the Swissie and Sterling grabbing the spotlight. The Swiss Franc has been the outperformer on the day and one of the only currencies that tracks higher against the USD. We noticed that Goldman Sachs closed its recommendation to buy Aud/Jpy today and we can’t help but think what implication this might have on their bullish Eur/Usd outlook.
MORNING SLICES
Fundys – Although the Euro is relatively unchanged overnight, there was definitely some interesting price action elsewhere with the Swissie and Sterling grabbing the spotlight. The Swiss Franc has been the outperformer on the day and one of the only currencies that tracks higher against the USD, following the key event risk in the form of the SNB rate decision overnight. Although the SNB left rates steady at 0.25% as expected, the accompanying statement and subsequent comments out from SNB Jordan, were enough to spark a wild whipsaw session of trade in the single currency, specifically against the Euro. In the statement, the central bank indicated that they would continue to intervene, to “decisively” prevent the appreciation of the Franc. This initially sent Eur/Chf flying to fresh intraday highs by 1.5130, before sharply pulling back on comments from SNB Jordan who said that the markets should not become too certain with the level of intervention and that FX purchases have fulfilled their purpose. This in conjunction with lower equity futures weighed heavily on the cross which now trades back towards the critical 1.5000 barriers. On the other side of the market, Sterling has been the standout laggard following a very discouraging batch of overnight data. [B]Retail sales[/B] were a disaster, while UK public finances showed the biggest deficit since recors began in 1993. UK CBI was also a big let down after coming in at -52 from -46 previous and showing the biggest drop in exports in over a decade. Finally, the BCC released its updated economic forecast, with a more dovish take on the economy. There has been a lot of talk of a double dip recession over the past several days with SNB Roth and Swedish FinMin Borg the latest to warn of such a scenario for the global economy. The reserve currency talk alsoremains a hot topic with the flip-flopping continuing as Canada’s Flaherty and the World Bank have both come out in support of the USDs reserve status. China has also come out saying that it could increase its holdings of US Treasuries if the USD is stable. In Canada, [B]CPI [/B]data has been released and has come in across the board higher than expected. This however has failed to materially factor into price action thus far, with Usd/Cad trading by daily opening levels. We noticed that Goldman Sachs has closed its recommendation to buy Aud/Jpy this morning and we can’t help but think what implication this might have on their bullish Eur/Usd outlook given that the yen cross is positively correlated with the major. This could suggest that they also might be losing confidence in their bullish Eur/Usd outlook. Looking ahead, US initial jobless claims (602k expected) and continuing claims (3840k expected) are due at 12:30GMT, while leading indicators (0.9% expected) and Philadelphia Fed (-17.0 expected) follow at 14:00GMT. US equity futures and commodities are mixed with both showing relatively unchanged from Wednesday’s closing levels.
Quant –
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Techs - EUR/USD tracking moderately higher on Thursday thus far and shows the potential for some additional upside above 1.4000 today. However, and moves above 1.4000 and towards 1.4050 are seen limited, with the market likely to fail by some falling trend-line resistance off of the 1.4340 2009 highs in the 1.4050 area. Key levels to watch above and below come in by 1.4035 and 1.3900 respectively. USD/JPY setbacks have finally stalled out for now, with the market well supported in the 95.00’s. We retain no strong directional bias and will watch the 96.80 and 95.00 levels for a clearer outlook. GBP/USD trading with a heavier tone on Thursday after breaking to fresh weekly lows by 1.6185 thus far. We have written of the potential for a major double bottom, but a more significant drop needs to be seen towards 1.5800 over the coming sessions for this pattern formation to play out. Any additional consolidation above 1.6200 negates pattern. Key levels to watch over the coming session come in by 1.6470 and 1.6185. USD/CHF trading with a heavier tone on Thursday thus far, but on slightly offered and yet still confined to the previous daily range. Ultimately, any additional setbacks are seen well propped ahead of 1.0600 with our bias continuing to favor fresh upside over the coming days beyond 1.0990. Key levels to watch intraday come in by 1.0830 and 1.0685.
Flows – Middle eastern names on the offer in Cable. Asian reserve manager selling Aussie. Short term spec accounts and CTAs bidding Eur/Gbp; model funds and real money accounts looking to sell. Talk of demand for short dated 1.3200 Euro puts.
Trade of the Day – Gbp/Aud: We contend that the market is in the process of carving out a major base since posting fresh multi-year lows by 1.9690 back on May 8, 2009. The formation and subsequent trigger of a double bottom on the daily chart reaffirms our bullish outlook, with the break of neckline resistance at 2.0610 on Tuesday opening the door for a fresh upside extension and measured move objective back towards the 2.1300 area at a minimum over the coming days. The latest pullback should be used as a formidable opportunity to establish fresh longs with any additional setbacks seen limited below 2.0500. Strategy: BUY @2.0410 FOR AN OPEN OBJECTIVE, STOP @2.0160. Recommendation to be removed if not triggered by NY close (5pm ET) on Thursday.
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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