FUNDYSAs expected the Bank of England cut rates by 50bps to 1.00% while the ECB remained on hold at 2.00%. The BoE decision fell inline with the earlier release of the Times’ Shadow MPC who voted 7-2 in favor of a rate cut. There is however greater volatility risk being assigned to the Euro with Trichet due to speak shortly after the rate decision. The market will be keenly focused on the central banker’s language, especially considering the recent acceleration in the deterioration of the Eurozone economy.There were only a few data releases overnight but once again the headline release was theUK HBOS house price number which came in much better than expected at +1.9% after analysts had been looking for a decline of 1.6%. Data out of the UK over the past few weeks continues to exceed expectations and there is some hope building that the local economy could finally be at a bottom. Meanwhile in the Eurozone, we are seeing a different story with data starting to come in worse than expected. This was highlighted today with the release of German factory orderswhich came in shockingly lower at -6.9% after analysts had been looking for a -2.5% print. Italian inflationfigures were also released earlier in the European session coming in softer than expected. In Australia, rumors were confirmed as the Upper House voted to delay the AUD42B stimulus bill. The North American calendar is full of event risk and official speak including; US initial jobless claims and Canada Ivey data (please refer to calendar for more information).
TECHS EUR/USD setbacks have once again been well propped in the 1.2800 area and it remains to be seen whether we are in the process of a short-term recovery or on the verge of bearish continuation. Key levels to watch above and below come in by 1.3070 and 1.2705 respectively. USD/JPY remains locked in consolidation but is showing some signs of life with the market trading higher and taking out Wednesday’s high by 89.80 to end a sequence 5 consecutive daily lower highs. GBP/USD price action remains extremely constructive with the Sterling showing relative strength across the board. The pair looks poised for some fresh upside following the latest consolidation and look for a direct retest on the 50-Day SMA today at 1.4675. The 50-Day SMA has proved to be a very good form of resistance for much of the downtrend and it will be interesting to see how the market reacts off of this level. Only back under 1.4325 negates. USD/CHF has reversed sharply to nearly fully negate Tuesday’s bearish reversal day. A break back above 1.1715 will open fresh upside towards 1.2000, while back under 1.1400 brings double top prospects back in play.
FLOWSStrong buy interest inSterling all morning with GBP/JPY showing good demand. System funds and short-term spec buy stops tripped in EUR/USD; Dutch bank on the bid; Asian central bank also bidding Euro. Japanese investment buyers of EUR/JPY while German accounts bidding USD/JPY. Reported CAD/JPY demand from a German bank.
TRADE OF THE DAY – GBP/JPY: (Sticking with Wednesday's Trade) The market has been confined to an intense downtrend over the past several months with the cross rate trading to fresh life-time lows by 118.85 on 23Jan ahead of the latest minor bounce. However, recent price action has been quite constructive with the market putting in a fresh higher low on each day in the preceding week and refusing to rollover after putting in a bearish reversal day on Monday of this week. Additionally, it is worth noting that the lifetime lows by 118.85 have directly coincided with former trend-line-resistance (30Oct high) now turned support. Although weekly studies remain in oversold territory, the weekly RSI looks to be on the verge of a positive cross for the first time since March 2008 where we saw a 20 big figure move to the upside. Positive crosses in the RSI on the weekly chart have been few and far between over the past 20 years and each time, the bullish signal has yielded a major shift in the trend. The one exception was March 2008 where we still saw significant upside (aprox. 20 big figures) before bear trend resumption. As such we recommend looking to buy the cross on a break above the previous weekly high. Strategy: BUY @ 131.00 FOR A 141.55 OBJECTIVE, STOP @124.90.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
To contact the author of this report, e-mail jskruger@fxcm.com
Quant Section Prepared by David Rodriguez, Quantitative Analyst for DailyFX.com
To contact, e-mail drodriguez@fxcm.com
Joel Kruger publishes 4 daily pieces:
“Morning Slices” – Morning Overview using Fundamental, Technical, Flow, and Quantitative Analysis (Includes “Trade of the Day”).
Monday-Friday (between 6:30-7:30am EST)
“Cross Country” – A Midday Fundamental Update, along with Technical Analysis of Selected Cross Rates.
Monday-Friday (between 10:30-11:30am EST)
“Scandi Daily” –A Specialized Daily Fundamental and Technical Overview of the Nordic Currencies. (This report is only distributed through email. Please contact Nordic@fxcm.com if you would like to be added to distribution.)
Monday-Friday (between 11:30-12:30am EST).
“Daily Classical” – A Daily Technical Overview of the Major Currencies.
Monday-Friday (published between 2:00-3:00pm EST)
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