The key standout in the overnight session of trade was the much weaker than expected UK jobless claims change coming in at a whopping 138.4k after analysts had been looking for an 84.8k print. Looking ahead, while it is quite clear that the Fed will likely remain on hold, all eyes will be more keenly focused on any sign of an announcement of US Treasury purchases, which would indeed be viewed as a form of quantitative easing.
Fundys - The key standout in the overnight session of trade was the much weaker than expected [B]UK jobless claims[/B] change coming in at a whopping 138.4k after analysts had been looking for an 84.8k print. This in conjunction with upward revisions to the previous month was seen heavily weighing on Sterling across the board, with Cable clearing sell-stops below 1.3965 and Eur/Gbp rallying sharply through 0.9400 barriers. Also in the UK, the Bank of England minutes were released showing a unanimous decision to cut rates by 50bps to 0.50% at the previous meeting while also showing a unanimous decision to implement a quantitative easing policy. The MPC did offer some optimism in their commentary, saying that were some signs that the UK recession was on track to ease in 2009. Elsewhere, the continued rally in global equities and increased risk appetite has helped to keep the USD offered against some of the other major currencies, although we have begun to see some notable USD buying against the higher yielding Kiwi today. ECB Trichet was on France’s radio earlier repeating much of what he has been saying over the past several days but did offer that 2010 could be a year of recovery. In Switzerland, retail sales came out at +1.2% versus the previous +3.6% reading but this did not factor into price action. While it is quite clear that the Fed will likely remain on hold with their 0.00-0.25% rates, all eyes will be more keenly focused on any sign of an announcement of US Treasury purchases, which would indeed be viewed as a form of quantitative easing. Looking ahead to the North American calendar, US CPI (0.0% y/y, 1.7% core expected) and current account (-137.1B expected) are due at 12:30GMT along with Canada wholesale sales (-2.7% expected). Later in the afternoon the FOMC rate decision (0.25%-no change expected) is due at 18:15 GMT. On the official circuit, Fed Cole is slated to testify on risk management oversight at 18:30GMT.
Quant -
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Techs - EUR/USD Short-term picture still remains constructive with the market eyeing a retest of next key resistance by 1.3095 (9Feb high). A break above should accelerate into the 1.3300’s, while inability to clear 1.3095 will start to put the pressure back on the downside. The key level to watch below is 1.2930. Below 1.2930 will suggest resumption of broader downtrend. USD/JPY (See below). GBP/USD break back below 1.3965 (Tuesday low) now puts the pressure back on the downside and suggests that a fresh lower top could now be in place by 1.4230 ahead of the next downside extension back towards key 2009 low trend support at 1.3500. Only back above 1.4075 will delay. USD/CHF remains confined to the recent choppy range, despite the latest break to fresh 2009 highs at 1.1970 last Thursday. Look for the market to trade lower over the coming session back towards the 10/20-Day SMAs by 1.1700. Key levels to watch above and below come in at 1.1835 and 1.1700.
Flows - Spec accounts target 100.00 break in Usd/Jpy; option expiries for Wednesday at 98.00, 98.50 and 99.00. US prime name on the offer in Cable; corporate bids by 1.3850-1.3900. Swiss bank on the bid in Eur/Gbp. Spec accounts winning out for now in Euro but good offers from an Asian reserve manager and Russian accounts; option expiries at 1.2950 and 1.3000 today. Domestic corporates and funds on bid in Aussie; Asian central banks selling.
Trade of the Day - UsdJpy: Has been slowly grinding higher within the sideways trade that has defined price action over the past several days. We have written about a battle between bulls and bears at current levels with bears arguing for a head & shoulders type topping pattern and bulls citing a bullish continuation pattern. However, with the pair already breaking down through the neckline of the head & shoulders pattern last week and then quickly reversing back up into the range, the failed downside attempt has left us with more of a bullish bias from here. We also have a hard time seeing a rally this significant over the past several weeks now failing to take out 100.00 after stalling just shy by 99.70 on March 5. While the overriding trend remains grossly bearish, we feel more comfortable looking to sell back into this longer-term trend after a break of 100.00 has been achieved. As such, we will look for an opportunity to sell today should the market start to rally significantly to take out the 100.00 level. Daily ATR projections show a potential high just over the previous 99.70 yearly high and right at the 200-Day SMA by 99.80. But any moves to 99.80 today should then open a direct retest of 100.00. Given the ability for moves to often overshoot, and given the high probability of significant stop-losses just above 100.00, we will look to sell above the critical psychological barriers today in anticipation of a sharp intraday pullback from there and potential broader down-trend resumption. Strategy: SELL @100.15 FOR A 97.15 OBJECTIVE, STOP @101.15. Stops to be trailed to cost on a break back below 99.65. If trade triggers and 99.65 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.
Fundamental Catalyst - Markets have been quite choppy of late leaving us with no clear directional bias. While we realize that today’s recommendation seems unlikely at current levels, there is still the potential that things will indeed play out the way we have described below. Should this occur, we believe we will be in an excellent position to take advantage of a compelling counter-trend opportunity. If the trade does not set-up, we will move on and look ahead to the next opportunity.
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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