Some improved investor sentiment overnight has fueled some additional carry buying with the USD selling off against most major currencies with the exception of the Yen on similar correlations. Looking ahead, the key event risk in the North American session comes out of Canada with retail sales followed by the highly anticipated BoC Monetary Policy Report. Meanwhile in the US, initial jobless claims, continuing claims and existing home sales are due.
MORNING SLICES
Fundys – Some improved investor sentiment overnight has fueled additional carry buying with the USD selling off against most major currencies with the exception of the Yen on similar correlations. Data out from the Eurozone could be helping with PMI coming in above 40 for the first time since October 2008, while the current account and new orders were also better than expected. Meanwhile in the UK, CBI industrial trends have come out showing a marginal improvement from the previous month, but still remain at very low levels. Despite the weakness in the Swiss economic releases overnight, as reflected by weaker trade, exports and ZEW, the currency has held up quite well and is now marginally higher on the day against the Euro. Many have attributed the Swiss strength to the latest Hildebrand comment in which the central banker said that the SNB would need to be patient to see how recent policy works before considering additional measures. This is in sharp contrast to other comments from Hildebrand which reinforce the SNB’s commitment to fight against Swissy appreciation. There has been some chatter about the upcoming G7 meeting with a Japanese MOF saying that the Group would unlikely call for additional stimulus. UK Darling however did say that the topic of the weaker Sterling would come up, but also said that there most probably wouldn’t be any additional talk on a replacement for the USD. In other news, the Russian central bank has cut its repo rate by 50bps to 12.50%. This is somewhat surprising after many had thought that the central bank would hold off on any moves until May. Elsewhere, Moody’s has just come out with a downgrade on Latvia’s foreign and local currency ratings to BAA3 from BAA1, with the outlook remaining negative. Looking ahead, the key event risk in the North American session comes out of Canada with retail sales (-0.3% expected) due at 12:30GMT followed by the highly anticipated BoC Monetary Policy Report due at 14:30GMT, where many expect the central bank to formally introduce quantitative easing measures. Meanwhile in the US, initial jobless claims (640k expected) and continuing claims (6120k expected) are due at 12:30GMT, followed by existing home sales (-1.5% expected) at 14:00GMT. On the official circuit, Fed Stern is slated to speak at 15:45GMT on new policies for financial stability.
Quant –
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Techs - EUR/USD (See below). USD/JPY setbacks are seen limited with the overall structure still favoring additional upside back towards the major 87.15 double bottom objective by 104.00 over the coming days. There is some decent internal range support in the 98.00 area, while the 50-Day SMA and Wednesday lows by at 97.60 are seen supporting any additional declines. Back above 98.90 is however required to accelerate gains and signal a resumption of the up-move. Only a close below 97.60 concerns. GBP/USD once again confined to inside day price action thus far with trade expected to remain choppy over the coming session. While our overall bias is for additional weakness, we do not rule out the possibility for some more strength on Thursday before bear trend resumption. Key level to watch over the coming session come in by 1.4710 and 1.4440. USD/CHF break back below 1.1635 on Wednesday opens the door for some more corrective action over the coming session, potentially back towards the 1.1500 from where a fresh higher low is sought out ahead of the next upside extension back above 1.1740. Key short-term levels to watch above and below come in by 1.1675 and 1.1540.
Flows – System fund and CTA sell interest in Eur/Chf. Talk of demand for Cable into London fix from French bank and UK clearer. German bank buying Eur/Usd, while buy-stops tripped in Eur/Jpy have also helped to fuel Eur gains. System fund and sovereign names bidding Yen crosses.
Trade of the Day – Eur/Usd: Wednesday’s bullish outside day has indeed shown some good positive follow through thus far with the market continuing to extend gains since basing out by 1.2885 on Wednesday. From here we see the risks for continued appreciation back towards the 1.3200 area from where a fresh lower top is ideally sought out below 1.3395 (13Apr high) ahead of bear trend resumption. The 1.3200 area offers itself as a formidable resistance point today with a major technical confluence of moving averages and Fibonacci retracements all coinciding at this level. This includes a pending negative cross of the 20-Day SMA with the 100-Day SMA along with the 61.8% retrace of the 1.3395-1.2885 move and the 38.2% retrace of the 1.3740-1.2885 move. Finally, should today’s rally continue, our “Average True Range” (ATR) analysis projects a potential daily high also by 1.3200. Strategy: SELL @1.3200 FOR A 1.2835 OBJECTIVE, STOP @1.3320. Stops to be trailed to cost on a break back below 1.3150. If trade triggers and 1.3150 not broken, position to be closed out at NY close (5pm ET) on Thursday. Recommendation to be removed if not triggered by NY close on Thursday.
Fundamental Catalyst – The currency is still nicely correlated to risk appetite and the overall performance in the US equities market. On Monday, we saw a major sell-off in US equities that we believe signaled the start to a resumption of the overriding downtrend. All bear markets have good rallies with even some of the best rallies coming within bear markets, as evidenced by the past 6 weeks in equities. However, this could be coming to an end now and the risks from here are for renewed equity selling which should translate into more flight to safety USD buying. Technically, Monday’s lows in the S&P are viewed as significant, with the move lower taking out the previous weekly lows and ending a sequence of 6 consecutive weekly higher lows. This is most certainly a bearish development.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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Quant section prepared by David Rodriguez, Quantitative Strategist for DailyFX.com
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Joel Kruger publishes 6 daily pieces:
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