USD Well Supported As Russia Reaffirms Commitment (MORNING SLICES)


Fundys – Data in the overnight session was very light, but bleak nonetheless with Swiss producer and import prices coming in worse than expected, while Eurozone employment data was very discouraging, putting in the largest quarterly drop since the data series began in 1995. Also out of Switzerland, business association Economiesuisse came out with some more downwardly revised forecasts on the local economy. The big story on Monday seemed to come out of Russia, with the USD benefiting across the board after the government reaffirmed its support for the USD as the reserve currency of choice. Commodity bloc price action was once again quite interesting with Kiwi, Aussie and Cad all getting hit the hardest with many attributing the price action to the bloc’s potential status as a leading indicator for weakness in the global macro economy. Meanwhile the Euro also showed some relative weakness with the [B]Eur/Gbp[/B]dropping to fresh 2009 lows, aided by more press from the Telegraph, warning of Germany’s deepening credit crunch. A couple of ECB officials were on the wires conveying a similar message, with both ECB Orphanides and ECB Tumpel-Gugerell warning that it was too soon to speak of an end to the current crisis.Looking ahead, Empire manufacturing (-5.10 expected) is due at 12:30GMT, along with Canada manufacturing shipments (-1.8% expected) and Canada new motor vehicle sales (0.0% expected). US TICs data ($52.9B expected) then follows at 13:00GMT, with the NAHB housing market index (17 expected) to cap things off at 17:00GMT. On the Fed circuit, Fed Evans is slated to speak on the economic outlook at 13:30GMT. US equities point to a lower open by some 1%, while commodities are also well offered, led by oil back under $71.

Techs - EUR/USD looks to be on the verge of triggering a major head & shoulders topping formation that would ultimately project additional setbacks to the 1.3250 area. Key levels to watch over the coming session come in by 1.3800 and 1.3935. USD/JPY consolidating since rallying to 98.90 in the previous weeks. However, the market seems to be very well supported into 97.00 and our bias is to the upside with a break of 98.90 seen over the near-term to accelerate gains back above 100.00. Only back under 97.00 negates. GBP/USD gains have stalled out ahead of the previous week’s 2009 highs by 1.6665 and the market could be attempting to carve out a second top by 1.6620 ahead of some renewed weakness. It is too early to tell at this point but Friday’s bearish reversal, followed by Monday’s break below Friday’s low, helps to strengthen case for double top. Key levels to watch over the coming session come in by 1.6455 and 1.6240. USD/CHF putting in some impressive gains on Monday to keep alive the hopes for an inverse head & shoulders base. Look for a break above 1.0990 to confirm and expose fresh upside back towards the 1.1400 area. Intraday dips should now be well supported ahead of 1.0800.

Flows – Asian central bank offers in Aussie. US investment house and UK clearer supply in Eur/Gbp. US name bidding Usd/Cad through IMM stops. US investment house demand for Eur/Usd being offset by hedge fund offers. Option expiries in Usd/Jpy at 98.90.

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 dating back to November 2008, and as such, we will look to use any additional dips into the lower 0.8400’s on Monday, as an opportunity to establish a counter-trend long. Strategy: BUY @0.8440 FOR AN OPEN OBJECTIVE, STOP @0.8320. Recommendation to be removed if not triggered by NY close (5pm ET) on Monday.

Written by Joel Kruger, Technical Currency Strategist for
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