Currencies are all over the place this morning with the Euro failing to take out 1.3740 overnight and pulling back to daily opening levels, while the Yen continues to appreciate. Meanwhile, Sterling is well offered across the board with the release of the quarterly inflation report and subsequent BoE King press conference weighing heavily.
Fundys – Currencies are all over the place this morning with the Euro failing to take out 1.3740 overnight and pulling back to daily opening levels, while the Yen continued to appreciate. Meanwhile, Sterling was well offered across the board with the release of the quarterly inflation report and subsequent BoE King press conference weighing heavily. The outlook remains quite gloomy in the UK and King has highlighted this fact by saying that the UK position is worse than that of many other countries. King’s feeling is that the markets are being a little too optimistic at present and it is still too early to be able to easily determine that we are out of the woods. While King concedes that monetary and fiscal measures, along with the depreciation in Sterling and an anticipated equity rebound suggests that we could be in the process of bottoming, he also warns that given the unprecedented nature of the economic crisis and excessive overleveraging, the credit markets would likely remain tight for some time. On the whole a very balanced and cautious outlook that is less encouraging than many had anticipated. King refused to make any calls for a recovery and maintained that the primary objective was to weigh the risks to both the upside and downside. In the Eurozone, the calendar was very light with the only key release coming from industrial production which came in doubly worse than expected at -2.0%. The New Zealand Dollar is easily the weakest currency thus far on the day, with indications from the RBNZ of the potential for additional rate accommodation and comments from board member Spencer weighing. Spencer wasn’t shy about saying that he did not expect the recent Kiwi appreciation to last and felt that the single currency would soon revert to the underlying downtrend. US equity futures point to a lower open, while on the commodity front, oil tracks higher and looks to break back above $60, while gold trades flat. Looking ahead to the North American session US mortgage applications are due at 11:00GMT, followed by retail sales (0.0% expected), import prices (0.6% expected), and Canada new motor vehicle sales (6.0% expected) at 12:30GMT. US business inventories (-1.1% expected) also are slated for release at 14:00GMT. On the official circuit, Treasury Secretary Geithner is at the Community Bankers’ Meet at 13:00GMT. Fed Duke speaks on the banks’ role in markets at 14:30GMT, while Fed Lockhart makes closing remarks at the Fianacial Markets Meeting at 16:00GMT.
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Techs - EUR/USD has managed to just post a fresh daily higher high today by 1.3725 ahead of the latest minor pullback. However, we would expect to see a retest of the key trend high by 1.3740 over the coming hours. Only back under 1.3555 negates. USD/JPY remains well offered into Wednesday and now trades just shy of key trend support by 95.60. Only back above 96.70 will take the pressure off of the downside. GBP/USD has pulled back quite sharply after being unable to take out Tuesday’s 1.5355 highs and mount a challenge on the 2009 highs at 1.5375. Nevertheless the structure still remains constructive while above 1.5075 with only a break back below 1.5075 to shift bias. USD/CHF has finally taken out key psychological barriers at 1.1000 on Wednesday to trade to 1.0975 ahead of the latest minor bounce. Back under 1.0975 opens the door for a move to 1.0865 while above 1.1110 negates and delays bearish structure.
Flows – Canadian bank and US prime name selling Cable; real money and custodial on the bid. Large Eur/Gbp option expiries at 0.8950 today. Positive fund flows in Aussie. European bank buyer of Euro; semi-official on the offer. Real money and commercial sell interest in Usd/Jpy.
Trade of the Day – Usd/Cad: The pair is still showing very stretched and is in need of a healthy corrective bounce. Our trade from Friday has once again stopped at cost for no loss and we look to take advantage of yet another dip to fresh 2009 lows on Wednesday. The key level to watch below comes in by 1.1465 which represents the 5Nov range lows. We continue to favor being long of the pair on dips below 1.2000 and with the market showing the potential for a test of the multi-week range lows today, we will look to take advantage. BUY @1.1470 FOR A 1.1820 OBJECTIVE, STOP @1.1295. Stops to be trailed to cost on a break back above 1.1570. Recommendation to be removed if not triggered by NY close (5pm ET) on Wednesday.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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Quant section prepared by David Rodriguez, Quantitative Strategist for DailyFX.com
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