Morning Slices: Delayed US Stimulus Package Front and Center

MORNING SLICES

Fundys – Not a lot of event risk overnight with the markets left trading on broader global macro fundamentals. The delay in the US bailout plan has definitely been at the forefront of investor minds with many feeling that a positive result will continue to fuel the healthier risk appetite we saw at the end of last week. Eurozone data on the whole was weaker than expected but not really factoring into price action, with trade balance slightly weaker than expected, current account slightly better and Eurozone Sentix much weaker. Sterling momentum has carried over into the early week with the single currency once again proving to be the currency of choice as investors flow back into risk. PM Brown was on the wires stressing the need for additional fiscal stimulus saying that lending must be increased in a “radical way.” These progressive comments in conjunction with the news of a profit at Barcalys bank have helped to fuel the additional gains this morning. Japan’s Sugitomo suggested more talks on currency movement at the upcoming G7 while Hirano downplayed saying that FX is unlikely to be major G7 topic. Delays in the Australian stimulus bill and comments from RBA McKibbin suggesting that the package is too large have mitigated Aussie gains this session, while the latest ANZ job ads survey has also weighed. SNB Jordan has been showing concern over the strength in the Swissy saying that a weaker currency would be welcome in the current crisis. The UAE oil minister remains downbeat on the global economic outlook and says that oil prices are half of what they should be. Looking ahead, the North American calendar is light with the event risk coming in the form of Canada housing starts at 13:15GMT (165k expected).  

Techs - EUR/USD well supported on dips into the 1.2700 area and following Friday’s bullish outside day, scope exists for a more significant corrective bounce. We are seeing potential for a double bottom within a double bottom with the initial neckline coming in as the next relevant topside resistance by 1.3070. Key short term level to watch below comes in by 1.2875. USD/JPY is looking more constructive following the previous week’s push and the pair is now trading back in the Ichimoku cloud. Nevertheless, while below 94.60 the underlying trend remains grossly bearish and there is the potential for resumption of downside pressures. Key levels to watch over the coming session come in by 92.45 and 90.75 respectively. GBP/USD is now testing falling trend-line resistance off of the mid-December highs but remains quite constructive as the pair continues to correct out from the multi-year lows at 1.3500. Daily ATR suggests that we could see gains extend just over the 1.5000 barriers today before finally stalling out. There is some good resistance just ahead of 1.5000 in the form of the 78.6% retracement off of the 1.5375-1.3500 move along with the 16Jan high at 1.4980. Expect dips to be well propped ahead of 1.4700. USD/CHF price action suggests that we could be headed lower before resumption of the broader up-trend. Look for a break back below 1.1585 to confirm and expose a retest by 1.1400 over the next few days. Only back above 1.1745 negates. 

Flows – Japanese securities house on the bid earlier in USD/JPY; US demand propping dips intraday; small option expiries by 90.00 today. Decent two-way flows in Cable with UK clearer on the bid all day while model fund on the offer in the 1.4800’s; talk of Asian account offers on approach to 1.5000. USD/CAD getting offers overnight from UK and Swiss names but offset by model fund bids. Swiss bank noted buyer of EUR/CHF.

Trade of the Day – EUR/USD: The pairing has been remarkably well propped on dips over the past several days with the 1.2700 area acting as formidable support. A closer look at the daily chart reveals the potential for a double bottom within a double bottom, with the initial neckline coming in by 1.3070 (4Feb high) and the more significant neckline coming at 1.3330 (27/28Jan highs).  A break above 1.3070 should easily accelerate gains back towards 1.3330, while above 1.3330 will project significant upside towards the 1.3900 area. Strategy: BUY@ 1.3075 FOR A 1.3330 OBJECTIVE, STOP @1.2890.