We are not expecting a smooth session of trade today with the markets to attract additional volatility on month-end quarter-end flows. Following several sessions of a well bid USD, the greenback is finally finding some broad based offers on Tuesday. Looking ahead to the North American calendar, Canada industrial product prices, raw material prices and GDP are due, followed by US Case-Shiller, Chicago PMI and consumer confidence.
Fundys – We are not expecting a smooth session of trade today with the markets to attract additional volatility on month-end quarter-end flows. Following several sessions of a well bid USD, the greenback is finally finding some broad based offers on Tuesday. The Euro has been the top performing major against the buck with some of the strength being attributed to the latest OECD report which says that there is a “very slow trend” for the Euro to displace the USD in reserve holdings. Also seen propping have been comments from Eurogroup Juncker who says that he does not expect any EMU state to require a bailout and even if it were necessary, the EU will be able to respond appropriately. The topic of the USD position as the reserve currency of choice has been a hot one of late and the OECD does concede that the USD is still at this point the main global reserve currency. The World Bank’s Zoellick has also come out with his views on the USD, saying that the USD will remain the worlds principal reserve currency. Zoellick goes even further to say that a strong USD is critical for a global recovery. In its economic forecasts, the OECD reported that of all the major industrialized countries, Japan was expected to contract the most at 6.6% in 2009, followed by Germany at 5.3%. This should put some form of a damper on the news of additional Japanese stimulus by mid-April, with very little room for more aid in light of the surging public debt and gloomy growth prospects. In Spain, the Central Bank Governor and ECB Ordonez have said that urgent measures are required to prevent unemployment from reaching worrying levels. Meanwhile in Canada, some M&A related activity has weighed on the currency against Aussie on news of Canada’s pension plan Aud1.3B purchase of Macquarie Communications. This has help to rally Aud/Cad just shy of the 2009 highs by 0.8690. On the data front, German unemployment was worse than expected while Eurozone CPI was softer. In the UK, Gfk consumer confidence was better than consensus. In Switzerland, the UBS consumption indicator showed a drop from the previous month. Global equities are firmer, while commodities show mildly bid as well. Looking ahead to the North American calendar, Canada industrial product prices (0.4% expected), raw material prices (0.6% expected) and GDP (-0.7% expected) are due at 12:30GMT, followed by Case-Shiller (-18.6% expected), Chicago PMI (34.4 expected) and consumer confidence (28.0 expected) at 13:00GMT, 13:45GMT and 14:00GMT respectively. On the official circuit, Fed Stern is due to speak at 13:00GMT in Washington on “Too Big to Fail”, while Fed Plosser speaks in Chicago at 17:00GMT on Financial Regulatory Reform.
Techs - EUR/USD (See below). USD/JPY has recovered nicely on Tuesday with the overall structure still constructive and favoring a near-term break of the 99.70, 2009 highs. Key levels to watch above and below over the coming session come in by 98.90 and 97.20. GBP/USD setbacks have stalled out for now following 4 consecutive down-days off of the bear channel top. Ultimately, additional weakness is favored and rallies should be used as sell opportunities. Key levels to watch above and below come in by 1.4340 and 1.4110. USD/CHF has found some solid resistance in the form of a confluence of moving averages (20/50/100-Day SMAs) just over 1.1500. However. Any setbacks should be limited to the 1.1345 area ahead of renewed strength beyond Monday’s 1.1550 highs. Key levels to watch come in at 1.1520 and 1.1345.
Flows – German accounts and Asian central banks on the bid in Eur/Usd; system stops tripped; short-term specs on the offer. CTA stops hit in Usd/Chf overnight. Models and leveraged accounts bidding Aussie all day; US investment house recommends long Aussie. UK and Russian selling in Usd/Jpy being met by solid bids from Japanese pension funds and year end flow demand. Japanese insurance company bidding Eur/Jpy. UK clearer offering Cable. Russian accounts buying Gbp/Jpy.
Trade of the Day – Eur/Usd: The drop out from the 1.3740 highs reached on 19Mar has been quite impressive with the pair pulling back all the way to 1.3115 on Monday ahead of the latest minor bounce out from the 100-Day SMA. We had written of the need for the market to fill the parabolic price action from a few weeks back which catapulted the major from 1.3070 to 1.3500 following the FOMC event risk, and this indeed has transpired. From here, there is a risk for more of a bounce before ultimately once again rolling back over for a resumption of the broader downtrend. We feel the best approach given the choppy nature of the market is to look for opportunities to sell into rallies, and as such we will use the previous support now turned resistance by 1.3415 (the consolidation lows from last week) as an entry point for fresh shorts. Strategy: SELL @1.3415 FOR A 1.3115 OBJECTIVE, STOP @1.3515. Stops to be trailed to cost on a break back below 1.3365. If trade triggers and 1.3365 not broken, position to be closed out at NY close (5pm EDT) on Tuesday. Recommendation to be removed if not triggered by NY close on Tuesday.
Fundamental Catalyst – The Euro remains very well correlated to market risk appetite and performance in global equity prices. With global equities rolling back over of late on an escalation in fears over the state of the US auto sector, and with more downgrades of European countries along with failures of regional European banks, we see no reason for much optimism with any rallies to be used as good sell opportunities. Additionally, we continue to see the Euro as exposed on the monetary policy side as well, with market participants not yet pricing in the eventual likelihood that the ECB will indeed need to resort to a quantitative easing approach. Data out of the region has certainly not been supportive of the Euro overnight with weaker German unemployment numbers and softer Eurozone CPI.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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