BOE and BOC Rate Decisions in Focus (Morning Slices)

Published September 10th, 2009 - 08:53 GMT


Fundys – We are finally starting to see some decent USD gains on Thursday with many traders looking to book profit on currency longs while others have begun to consider building longer-term USD positions at current levels. The economic calendar in the overnight session was quiet with UK Halifax coming in as expected and the ECB monthly bulletin producing no surprises. ECB Weber, Liikanen and Mersch were all on the wires, but no new insights were given with the large takeaway that while signs of improvement were emerging, it was not yet time to initiate an exit strategy. Meanwhile in Norway, CPI came in on the softer side of expectations, which hurt the local currency and knocked it down to the worst performer on the day. Many had been expecting the Norges Bank to be the first central bank to raise rates, and this development has now cast a shadow of doubt. The commodity currencies have also all been hit on Thursday with Aussie the standout loser following the weaker employment numbers. Despite continued talk from Governor Bollard of an overvalued currency, and concerning fundamentals, Kiwi still has managed to fare better than Aussie and Cad thus far. Moody’s has come out this morning saying that Germany is well positioned to deal with the financial markets crisis and should retain its AAA rating. Meanwhile, China’s Premier Wen talks of the “light of dawn” for the global economy. Looking ahead, the Bank of England gets set to decide on rates at 11:00GMT. While it is widely expected that the BOE will leave rates unchanged at 0.50%, there has been some speculation that the central bank will once again ramp up its quantitative easing efforts. Later, Canada international merchandise trade (0.1B expected) comes out at 12:30GMT, along with US trade balance (-$27.3B expected), initial jobless claims (560k expected) and continuing claims (6200k expected). The Bank of Canada then moves at 13:00GMT and it is also expected to leave rates unchanged at 0.25%. US equities point to a slightly lower open. On the commodity front, gold is well offered back to $985 and oil trades flat.

Techs - EUR/USD (See below). USD/JPY Tuesday’s sharp setbacks once again put the focus on the downside with the market still eyeing a break of the July trend lows at 91.75. While the overall structure is grossly bearish, we are not inclined to sell the pair at current levels which are already close to oversold and therefore not offering a compelling risk/reward trade. Instead, we will wait for a break below 91.75 to potentially catch a playable long trade in anticipation of a correction, or wait for another rally from current levels to look to sell back into the strong downtrend. Key resistance above comes in by 93.30 with a break of this level now required to take the pressure off of the downside. GBP/USD Bulls have no reason to get too excited at current levels with the market still very well confined to a multi week range below the 2009 highs. We continue to hold onto a more bearish bias with any rallies viewed as a good sell opportunity in anticipation of a major topping formation on the daily chart that ultimately could project declines back towards the 1.5000 area over the coming weeks. Nevertheless, we will proceed with caution and only look to establish short positions on overbought intraday readings. An ideal level to look to sell on Thursday comes in by 1.6685 which directly coincides with the 61.8% fib retracement off of the 1.7045-1.6115 move. However, we will not issue a formal recommendation at this time and will stand aside. USD/CHF Tuesday’s break below critical psychological barriers at 1.0500 definitely delays are constructive outlook and potentially exposes next key support from December 2008 at 1.0370. We still do not recommend selling at current levels and instead will look for a dip and overshoot beyond 1.0370 to look to establish a counter-trend long trade. A drop into the lower 1.0300’s should put the daily RSI below 30 and set-up a compelling long trade. We will keep a close eye. 

Flows – UK clearer sales in Cable. Middle East and model fund selling in Eur/Usd. Semi-official and sovereign wealth fund offers  in Usd/Jpy.

Trade of the Day – Eur/Usd:
There is no significant topside resistance now until 1.4720 and scope does exist for a move back towards this level over the coming hours. As per the usual however we continue to look for opportunities to sell into rallies, with the hope of catching a sizeable corrective pullback. Any moves towards 1.4700 should present an ideal short-term sell entry on Thursday. We will also pay close attention to the daily RSI which is approaching overbought readings by 70. A push to 70 will intensify our bearish outlook. STRATEGY: SELL @1.4670 FOR AN OPEN OBJECTIVE; STOP @1.4870. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY CLOSE (5PM NY) ON THURSDAY.

P&L Update and Overview: Many of you have been asking for a way to better track trading results and open positions. In response to these requests and in an effort to be fully transparent, a simulated portfolio was been created in June to track and mirror all recommendations and trades. Below is a return on equity curve since inception on June 1, 2009, along with an open and closed position tracker. I am hopeful that this will make things easier for you all.

Additionally, please feel free to check out a full profit and loss statement since inception on June 1, 2009.


Written by Joel Kruger, Technical Currency Strategist for
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