The reaction from the shock of the much weaker than expected UK retail sales data has been interesting with Sterling still managing to hold up quite well despite the -1.9% print. Looking ahead, the calendar in the US is stacked, with key event risk coming in the form of GDP at 12:30GMT. Also out are personal consumption and initial jobless claims. On the official circuit, Treasury Secretary Geithner takes center stage in front of the house financial panel.
MORNING SLICES
Fundys – The reaction from the shock of the much weaker than expected UK retail sales data has been interesting with Sterling still managing to hold up quite well despite the -1.9% print after consensus estimates were calling for -0.4%. Price action in the majors overnight has been relatively quiet with only Usd/Jpy making some noise and bidding back towards key resistance by 99.70. Also out in Europe was [B]German Gfk consumer confidence[/B] which failed to materially factor into price action after coming in slightly weaker than expected. Fed Lockhart has been on the wires to reaffirm the USD position of the dominant global reserve currency following yesterday’s market moving Geithner comments. Talk of a global reserve currency has once again picked up over the past 24 hours and the Russian central bank has now announced that they are planning to review their currency structure of reserves. Russia’s share of US Treasuries in reserves amounts to over 30%. In China, PBOC Zhou has said that leading indicators signal a recovery on the horizon for Chinese economic growth while also adding that he expects China to serve as a stabilizing force in the global economy. US equity futures point to a higher open and the latest downbeat comments from Dr. Doom have seemingly failed to weigh on sentiment. Roubini says that deflationary pressures will persist for 2 or 3 years and that house prices may fall 15-20%. Commodity currencies have been the standout outperformers on the day, with Kiwi leading the way on surging government debt yields and a paring on expectations for additional cuts, up over 2% against the buck after triggering some stop-losses above 0.5750. Looking ahead, the calendar in the US is stacked with key event risk coming in the form of [B]GDP[/B] (-6.6% expected) due at 12:30GMT. Also out personal consumption (-4.4% expected) and initial jobless claims (650k expected) at 12:30GMT. On the official circuit, Treasury Secretary Geithner takes center stage in front of the house financial panel at 14:00GMT. Fed Lacker, Fisher and Stern are scheduled to speak at separate events.
[B]Quant –
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Techs - EUR/USD short position remains open from 1.3635 yesterday and stops have been trailed to cost to eliminate any risk. It is still unclear at this point whether we are in a bullish consolidation or carving out a top. Key levels to watch come in by 1.3650 and 1.3420. USD/JPY trading with a bid tone on the day but still not yet going anywhere with the pair confined to Tuesday’s range. Look for a break above 98.60 to expose a direct retest of the 99.70 2009 highs and beyond, while back under 96.90 delays. GBP/USD starting to look heavy following Wednesday’s bearish reversal day and a break below 1.4515 on Thursday will confirm bearish formation and likely signal a resumption of the broader downtrend. Only back above 1.4780 negates. USD/CHF latest sharp pullbacks below 1.1315 have found some decent support in the form of the 50% fib retracement off of the 1.0370-1.1970 move (1.1170) and the 200-Day SMA. Look for a break back above 1.1345 to confirm basing and open a move back towards 1.1500. Only back under 1.1160 negates.
Flows – Asian central banks, Russian names and Middle East players all on the offer on Cable; stops below 1.4515. Swiss bank recommends selling Eur/Usd; US investment bank and Eastern Europeans also offering. US spec on the offer in Kiwi off of the highs.
Trade of the Day – Gbp/Nzd: The cross has been in the process of a violent drop over the past several days after reaching a 2009 high by 2.8945 back on March 2. This leaves the market down a whopping 12% from the 2009 highs and severely oversold. Daily stochastics now reside by 11 while the daily RSI shows a 28 handle. All of these developments along with an already +600 pip drop on the day (over 2%) have the cross begging for some form of a corrective bounce from current levels. While the 78.6% fib retrace (2.5425) off of the 2009 low-highs has been exceeded, we do not expect the cross to be able to establish a close below the level and look for a quick bounce back above 2.5425 over the coming hours. Position: LONG @2.5200 FOR A 2.6340 OBJECTIVE, STOP @ 2.4850. Stops to be trailed to cost on a break back above 2.5350.
Fundamental Catalyst – Although this morning’s much weaker than expected UK retail sales data has weighed on Sterling, the currency has held up quite well. In any event, much of the moves in the currency markets and specifically in Kiwi, have been driven off of market risk appetite and willingness to trade back into higher yielding and riskier assets. We contend that Kiwi’s outperformance and relative strength in recent sessions is now overdone and highly susceptible to some form of a negative adjustment. Arguably, the shock of this morning’s UK data could weigh more heavily on the higher yielding antipodean, as the data release continues to remind us of the ongoing deterioration within the global economy and dangers of seeking out higher yielding and riskier investments. Additionally, the much anticipated New Zealand GDP data is due out later today and the markets are now looking for the 4th consecutive quarter of negative growth. As such, we would not at all be surprised to see some profit taking on Kiwi longs ahead of the event risk.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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[/B]Quant section prepared by David Rodriguez, Quantitative Analyst for DailyFX.com
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