Currencies Well Bid Ahead of ECB Event Risk

MORNING SLICES

FUNDYS
 

As has been the pattern of late, currencies are well bid into the US session, with the exception of the Yen, which has extended setbacks against the USD. It is however quite unusual and potentially somewhat telling to see that the bid in currencies has not been led by the higher yielding antipodeans, but rather the Euro and Swissie, which both track higher by some 0.50% against the buck on the day. Market participants are now looking for a fresh Eur/Usd 2009 high towards 1.5200 on Thursday, but order boards show some good supply on approach to the next psychological barrier. Meanwhile, Usd/Chf seems to be very well supported below parity.

Relative Performance Versus USD on Thursday (As of 11:20GMT) –

1)    EURO            +0.54%
2)    SWISSIE      + 0.51%
3)    AUSSIE         +0.51%
4)    KIWI              +0.42%       
5)    CAD               +0.14%
6)    STERLING     +0.14%   
7)    YEN                 -0.56%


On the data front, Eurozone revised GDP came in as expected, while retail sales and PMI were slightly weaker. Meanwhile in the UK, PMI data was softer and helped to generate some fresh broad based Sterling offers. Also seen weighing on the Pound was the news that the Bank of England was considering corporate bond sales to boost market liquidity.

Looking ahead, all eyes turn to the ECB rate decision due at 12:45GMT. Although it is widely expected that the European Central Bank will remain on hold at 1.00%, market participants will be keenly focused on the Trichet press conference that follows, for insights into the future direction of monetary policy, including the much talked about exit strategy.

The North American calendar is all US data, with Non-farm productivity (8.5% expected), unit labor costs (-4.2% expected), initial jobless claims (480k expected), and continuing claims (5400k expected) all due out at 13:30GMT. ISM non-manufacturing (51.5 expected) then caps things off at 15:00GMT. US equity futures are pointing to a higher open, while commodities are also marginally bid. It is worth noting that at the time of print, oil was outpacing gold on the day, which could be a warning sign for some exhaustion and profit taking in the yellow metal.
 

GRAPHIC REWIND
 

TECHS
 

EUR/USD The 50-Day SMA, which comes in by 1.4865 is the critical level to watch, with the medium-term moving average supporting a majority of the up-trend in 2009 on a close basis. As such, a close below this level would be viewed as a significant development and would suggest a material shift in the construct of the market. Given the latest volatility and whipsaw price action, we would recommend deferring to the weekly chart, which still shows the formation of a potential double top. The neckline comes in by 1.4625 and a break below would open a measured move decline towards the 1.4100's. As such, any rallies above 1.5100 should be used as an opportunity to establish short positions. Only a close back above 1.5145 would negate.

USD/JPY The market continues to extend declines to fresh multi-year lows since breaking below the recent 2008/2009 matched trend lows at 87.15. There is no real support now until 79.75 which represents the 1995 historic lows and a retest of this level can not be ruled out at this point with the overriding trend so intensely bearish. However, daily studies are in the process of correcting from oversold and the shorter-term risks seems to favor additional upside back towards the 88.50-89.00 area before considering the possibility for another round of weakness below the recent 84.80 trend low.

GBP/USD (See Below)

USD/CHF Our core bullish bias is still intact, with the market unable to establish itself on a two-day close basis below parity. This puts our major double bottom scenario back in play, with a closer look at the weekly chart more clearly defining the reversal formation. The neckline for the pattern doesn't come in until 1.0340, and a break above this level will be required to confirm and accelerate gains back into the 1.0700's. Ultimately, only back under 0.9915 would negate outlook and give reason for pause.

FLOWS
 

Option expiry at 88.00 in Usd/Jpy at NY cut. Large macro buying Eur/Jpy; models looking to buy above 133.00. Local accounts remain on the bid in Usd/Cad below 1.0500. US names on the bid in Gbp/Usd; Asian central bank offers. CTAs looking to sell Eur/Usd into 1.5200. 

TRADE OF THE DAY
 

Eur/Jpy: While overall price action is extremely choppy and lacking in clear directional bias, price action on Thursday looks to be overdone with hourly studies trading into overbought territory.  We therefore like the idea of fading the current surge in anticipation of a material corrective pullback into the latter half of the day. We have incorporated out ATR analysis in order to isolate an ideal entry above 133.00 with additional gains beyond the figure not viewed as sustainable on Thursday. STRATEGY: SELL @133.15 FOR AN OPEN OBJECTIVE; STOP 134.65. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON THURSDAY. 3X LEVERAGE.

Gbp/Usd: Our outlook for the pair remains well intact with the market adhering to the multi-month consolidation after failing ahead of 1.7000 and rolling back over into the well defined range. Look for a sustained break below 1.6250 to now open the door for some deeper setbacks over the coming weeks towards next key support by 1.5705. In the interim, below 1.6250 will expose initial previous resistance turned support by 1.6130. Rallies should now be well capped by 1.6800, with only a clear break back above this psychological barrier to delay outlook. STRATEGY: SELL @1.6805 FOR AN OPEN OBJECTIVE; STOP 1.6955. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON THURSDAY. 3X LEVERAGE

PORTFOLIO OVERVIEW

 

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 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.

Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
If you wish to receive Joel's reports in a more timely fashion, e-mail jskruger@fxcm.com and you will be added to the "distribution" list.

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