Not a lot of USD supportive developments overnight with the Greenback initially hit hard on the back of comments out from Russia’s Medvedev who expressed deep concern over the underperformance of reserve currencies including the USD. The BRIC meeting is underway and Russia has been quite vocal with their discussion on an alternative to the USD.
MORNING SLICES
Fundys – Not a lot of USD supportive developments overnight with the Greenback initially getting hit hard on the back of comments out from Russia’s Medvedev who expressed deep concern over the underperformance of reserve currencies including the USD. The BRIC meeting is underway and Russia has been quite vocal with their discussion on an alternative to the USD as a reserve currency. The consensus is that the Rouble, Yuan, commodity currencies and gold should all be incorporated into the IMF SDR basket. This is quite a departure from Monday’s bullish USD Russia comments. Interestingly enough, despite the broad based currency buying, the Yen has been the outperformer on the day, after many stops were cleared in Usd/Jpy on the break below 97.00 barriers overnight. This also put some downside pressure on the Yen crosses, which helped to fuel the relative outperformance. Data overnight was across the board better than expected, with Eurozone CPI coming in higher, labor costs exceeding expectations and German ZEW really impressing to the upside. ECB Wellink was also on the wires saying that national central banks would be involved in the covered bond scheme program, while also adding that the ECB was less ambitious than Fed on asset purchases. Meanwhile in the UK, Sterling was very well bid, largely driven by the much higher than expected inflation result. This in conjunction with a better than expected syndicated bond auction and news that the government was working on a deal where they might not have to pump GBP3B of additional capital into Northern Rock, helped to propel Cable above Monday’s 1.6455 highs and just shy of 1.6500. Elsewhere, in Japan, Shirakawa said that the economy was moving in line with expectations. In Australia, the RBA minutes were mixed, which left the Aussie as the relative underperformer on the day, despite marginal gains against the buck. US equity futures point to a slightly higher open, while commodities are back on the bid, led by oil.Looking ahead, it is a busy session of trade with producer prices (0.6% expected), housing starts (483k expected) and building permits (500k expected) all due at 12:30GMT, along with Canada labor productivity (-0.2% expected). Industrial production (-0.8% expected) and capacity utilization (68.4% expected) follow at 13.15GMT. On the official circuit, Fed Warsh speaks in New York at 21:15GMT.
Quant –
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Techs - EUR/USD gains are now seen well capped ahead of Monday’s 1.4035 high, with a lower top sought out in the 1.3950 area, ahead of the next drop back through 1.3750. Only back above 1.4035 gives reason for concern and delays bearish topping structure. USD/JPY has pulled back quite sharply overnight to break the multi-day consolidation lows above 97.00, all the way down just shy of 96.00 ahead of the latest minor bounce. Nevertheless, we still retain a bullish bias while the market holds above 94.45, with a higher low sought out ahead of fresh upside beyond 98.90 and through critical psychological barriers at 100.00. GBP/USD bullish outside day is somewhat concerning but we contend that gains will now be limited to the current intraday highs at 1.6485 ahead of the next drop through 1.6200 barriers. Only back above 1.6620 negates. USD/CHF recovery structure remains intact, despite the latest setbacks, with the market managing to put in a fresh daily higher high and higher low. Look for any additional setbacks to be well supported ahead of 1.0780, in favor of some fresh upside beyond 1.0990 and towards the 1.1400 area.
Flows – Canadian bank sell-stops tripped in Usd/Cad. Stops cleared above 1.3900 in Eur/Usd. German selling in Eur/Gbp. Eastern Europeans buying Gbp/Jpy. Macro fund demand on dips in Usd/Jpy. Local bank bidding Aussie; reserve manager on the offer.
Trade of the Day – Eur/Gbp: The cross has been in the process of undergoing some significant depreciation over the past several weeks, with the market dropping to fresh 2009 lows below psychological barriers at 0.8500 thus far. However, as much as we favor continued weakness over the longer-term, shorter-term studies are starting to show the need for some upside, with daily studies approaching oversold levels and in need of a healthy corrective bounce. There is some decent congestion in the 0.8400 area, dating back to November 2008, and as such, we will look to use any additional dips into the lower 0.8400’s on Tuesday, as an opportunity to establish a counter-trend long. Strategy: BUY @0.8405 FOR AN OPEN OBJECTIVE, STOP @0.8285. Recommendation to be removed if not triggered by NY close (5pm ET) on Tuesday.
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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