BoE Event Risk Unlikely to Make Waves

MORNING SLICES

FUNDYS

The markets continue to chop around intraday with all major currencies tracking higher against the buck, with the exception of the Yen. Kiwi has been outperforming on the day, as market participants ignore ongoing warnings from RBNZ’s Bollard who says that the single currency is overvalued. Another currency which is believed to be overvalued by its central bank is the Swiss Franc, with the SNB once again coming out and reaffirming its commitment to continue to combat any appreciation in the currency against the Euro. SNB Roth has said that the recovery in the economy is more a function of stimulus measures and that the rebound has not been firmly anchored. All of this follows the SNB decision to leave its 3 month Libor target and band unchanged at 0.25%-0.75%.

Relative Performance Versus USD on Wednesday (As of 11:00GMT) –

1)    KIWI              +1.29%
2)    AUSSIE         +0.91%
3)    CAD               +0.30%
4)    STERLING    +0.28%       
5)    SWISSIE       +0.15%
6)    EURO            +0.09%   
7)    YEN                -0.44%

Elsewhere, the ECB Monthly Bulletin report was released but failed to impact price action after the usual line that rates are appropriate and the recovery is likely to be bumpy, failed to surprise the markets in any way. In the UK, Chancellor Darling was out assuring a credible and deliverable fiscal plan, after coming under attack for being too cavalier and lax in his approach on Wednesday following the PBR. In the Nordic region, inflation data from both Sweden and Norway came in broadly as expected. Market participants seem to be calming down after some earlier panic from the Dubai debt concerns and Greek downgrades, with sentiment aided by some upbeat comments from a Dubai FinMin and a local bank recommendation to buy Greek debt at current post-panic levels.

Looking ahead, initial event risk into the North American open comes in the form of the BOE rate decision in which the central bank is widely expected to leave rates unchanged at 0.50%, and the current asset purchase program at GBP200B. US trade (-$36.8B expected), initial jobless claims (455k expected) and continuing claims (5450k expected) are all due at 13:30GMT, along with Canada international merchandise trade (-0.7B expected). Later in the day, the US monthly budget statement (-$131.6B expected) is released at 19:00GMT. On the official circuit, Treasury Secretary Geithner testifies on TARP at 15:00GMT, while Fed Duke speaks in Chicago at 18:45GMT. US equity futures point to a firmer open, while commodities are also bid. News that Citi is in negotiation to repay TARP funds have been helping to prop futures.

GRAPHIC REWIND
 

TECHS

EUR/USD The market continues to extend declines with an acceleration seen since the close below the critical 50-Day SMA. Setbacks have now stalled just shy of next key support by 1.4625, but we look for this level to be taken out over the very near-term. A break below 1.4625 will then expose the next downside extension towards 1.4480 further down. It is however worth noting that the market has been supported by a longer trend-line from June which comes in just under 1.4700. Nevertheless, any rallies should be well capped ahead of 1.4850, with daily studies still showing room for additional weakness from here.

USD/JPY The corrective rally out from the recent 84.80 multi-year lows has stalled out, and a fresh lower top is now sought out below 92.35, by 90.80, ahead of an eventual retest and break below 84.80. The overriding trend is still intensely bearish and market participants should look to take advantage of any overdone rallies to build on short positions. Only back above 92.35 would give reason for concern and delay structure.  

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. Tuesday’s break below 1.6250 is significant and should now open a fresh downside extension that exposes a retest on 1.5700 over the coming days. Any rallies are expected to be well capped ahead of 1.6500. Daily studies are approaching oversold but there is still room for the current decline to continue. 

USD/CHF Our core bullish bias is still intact, with the market unable to establish itself on a two-day close basis below parity, ahead of the latest sharp topside reversal. This puts our major bottoming scenario back in play, with a closer look at the weekly chart more clearly defining the reversal formation. The neckline for the base comes by 1.0340, and a break above this level will confirm bias and accelerate gains back into the 1.0700's. Ultimately, only a close back under 0.9915 would negate outlook and give reason for pause. For now, look for any intraday setbacks to be well supported ahead of 1.0100.

FLOWS

Asian central bank buying Gbp/Usd; Middle Eastern names also on the bid. Semi-official buying in Eur/Usd. Model funds buying Aussie, Cad, Kiwi. Local accounts buying Usd/Cad.
 

TRADE OF THE DAY

Gbp/Aud: (Still with same trade but have re-bought lower after being stopped at break-even overnight) In the process of a multi-day consolidation since rallying out from the recent multi-year lows set by 1.7330 in October. Any dips have been very well supported in the 1.7700-7800’s of late, and we would expect to see this area continue to support, with a medium-term higher low now sought out by 1.7695 ahead of the next major upside extension beyond 1.8370.  Longer-term studies certainly confirm our constructive outlook, with the market looking very stretched and due for additional strength over the coming weeks and months. We contend that a major bottom is now in the process of carving out and do not expect to see a retest of 1.7330 anytime soon. LONG @1.7750 FOR AN OPEN OBJECTIVE; STOP 1.7550.

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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