Yen Crosses Well Bid Overnight on Flow Back into Yield (MORNING SLICES)

Data in the overnight session of trade was light, but this was not reflected in price action which continued to see a flow back into the higher yielding currencies. The antipodeans were the prime beneficiaries as a result, with higher US equity futures and commodity prices helping to fuel the relative strength. The Yen crosses were also very well bid, with Gbp/Jpy, Cad/Jpy and Aud/Jpy, all managing to squeak out fresh 2009 highs.


[B]Fundys –[/B] Data in the overnight session of trade was light, but this was not reflected in price action which continued to see a flow back into the [B]higher yielding currencies[/B]. The [B]antipodeans[/B] were the prime beneficiaries as a result, with higher [B]US equity futures [/B]and [B]commodity prices[/B] helping to fuel the relative strength. The [B]Yen crosses[/B] were also very well bid, with [B]Gbp/Jpy[/B], [B]Cad/Jpy[/B] and [B]Aud/Jpy,[/B] all managing to squeak out fresh [B]2009 highs[/B]. There were however more concerns over the state of the [B]Eastern European [/B]economies, with[B] Fitch[/B] warning that [B]Latvia[/B] faces a [B]“significant and rising”[/B] risk of currency devaluation. [B]Sweden[/B] was also in the news announcing that it would be borrowing some[B] EUR3B [/B]from the [B]ECB[/B] to ensure financial stability. In the [B]Eurozone[/B],[B] German CPI [/B]came in as expected, while in the [B]UK [/B]data was mixed, with a stronger[B] industrial production[/B] release but much weaker [B]trade balance[/B]. [B]Bank of England Barker[/B] was on the wires expressing her concern over the sustainability of any economic pick-up. [B]US mortgage applications [/B]have come out at -7.2%, showing an improvement from the previous week’s -16.2% reading. Looking ahead, [B]Canada international merchandise trade[/B] (0.8B expected) and [B]new house prices[/B] (-0.5% expected) are due at 12:30GMT, along with the [B]US trade balance[/B] (-$28.7B expected). Later in the day, the [B]Fed Beige Book[/B] and[B] US monthly budget statement /B are due at 18:00GMT. US equity futures show all major indices opening up more than 1%, while commodities are very well bid with [B]oil[/B] leading the way after breaking to fresh yearly highs above $71.

[B] Quant – [/B]

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[B] Techs -[/B] [B]EUR/USD[/B] rallies seen limited to the 1.4225-1.4240 area, but Wednesday’s surge has stalled out for now by 1.4145 to open the possibility for a lower top. Ultimately, a break back under 1.3805 will be required to accelerate declines, while above 1.4340 negates bearish outlook. [B]USD/JPY [/B]well supported on dips to 97.00, with a fresh higher low sought out by the previous resistance zone ahead of renewed upside beyond 98.90 and eventually through psychological barriers at 100.00. Key levels to watch over the coming session come in by 98.60 and 97.10. [B]GBP/USD [/B]rallies seen limited to the 1.6475-1.6550 region with a lower top being sought out below 1.6665 ahead of the next downside extension below 1.5800. Key levels to watch over the coming session come in by 1.6445 and 1.6295. [B]USD/CHF[/B] setbacks seen limited to the 1.0650-1.0675 area, with a higher low sought out above 1.0590 ahead of the next upside extension through 1.0990. Key levels to watch above and below come in by 1.0835 and 1.0720.

[B] Flows –[/B] US fund demand for [B]Usd/Jpy[/B]. US funds selling [B]Usd/Chf[/B]. Central bank demand for[B] Eur/Usd[/B]; speculative accounts on the offer. Model funds looking to buy[B] Eur/Chf[/B]. Model stops triggered in [B]Cad/Jpy[/B].

[B] Trade of the Day – Aud/Usd: [/B]The market has taken to selling USDs one again, with the Aussie surging overnight to trade back above previous trend-line support into the 0.8100’s. However, we view the break of the multi-day trend-line support in the previous week as net bearish, with any rallies back above this trend-line seen limited. The 78.6% fib retracement off of the 0.8265-0.7825 move comes in at 0.8170 and also directly coincides with Wednesday’s projected daily ATR (Average True Range) high. As such, we will look for opportunities to sell into this level, in anticipation of a lower top below the 0.8265 2009 lows, and ahead of a fresh downside extension to be confirmed on a break back under 0.7825. [B]Strategy: SELL @0.8165 FOR AN OPEN OBJECTIVE, STOP @0.8315. [/B][I][B]Recommendation to be removed if not triggered by NY close (5pm ET) on Wednesday. [/B][/I]

[B]Written by Joel Kruger, Technical Currency Strategist for
If you wish to receive Joel’s reports in a more timely fashion, e-mail [/B][B][/B] [B]and you will be added to the [/B][B]“distribution” [/B][B]list.[/B]

[B]Quant section prepared by David Rodriguez, Quantitative Strategist for
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