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ECB LTRO Results in Choppy Intraday Trade; Commodity Bloc Rallies

ECB LTRO Results in Choppy Intraday Trade; Commodity Bloc Rallies

Joel Kruger, Technical Strategist
  • ECB LTRO a little higher than expected
  • Euro risks still tilted to upside with focus on establishment above 1.3500
  • Yen stabilized after bout of intense selling
  • Global equities remain very well supported but still see risks for pullback
  • Fed Chair Bernanke due to speak; markets could see more volatility
  • German unemployment holds at twenty year low

A good bout of North American data and Fed Chair Bernanke are still due while the market has been trying to digest the latest ECB LTRO results. The initial reaction has been Euro neutral while risk correlated currencies like the commodity bloc have found renewed bids. The Euro 529.5B LTRO 3- year take-up was slightly higher than expected, but on the whole within the reach of what analysts had been looking for.

Relative performance versus the USD Tuesday (as of 12:00GMT)

  1. NZD +0.82%
  2. AUD +0.62%
  3. CAD +0.61%
  4. GBP +0.20%
  5. JPY +0.02%
  6. EUR -0.16%
  7. CHF -0.17%

Although the reaction in the Euro was one of selling the fact, there were some concerns over the revelation that 800 banks bid for the extra liquidity this time around versus the 523 in December. Still, the commodity currencies were well bid on the news, presumably on the assumption that the excess funds from the LTRO would be invested into correlated assets like stocks and commodities. AUD, NZD and CAD made fresh 2012 highs against the buck in the European session, taking out key barriers by 1.0845, 0.8435 and 0.9900 respectively.

Overall, retail positioning shows traders long the US Dollar against all of the major currencies, and we fear these traders could still feel a little more pain before things turn around. At this point, we recommend staying on the sidelines and waiting for a clearer opportunity to present. Also likely to add to the volatility in Wednesday trade will be the end of month flows, with a good deal of movement always expected on the final day of trade for February.


ECB_LTRO_Results_in_Choppy_Intraday_Trade_Commodity_Bloc_Rallies_body_Picture_5.png, ECB LTRO Results in Choppy Intraday Trade; Commodity Bloc Rallies


ECB_LTRO_Results_in_Choppy_Intraday_Trade_Commodity_Bloc_Rallies_body_eur.png, ECB LTRO Results in Choppy Intraday Trade; Commodity Bloc Rallies

EUR/USD: The latest break and daily close above 1.3325 ends a recent bout of multi-session consolidation and now opens the door for the next upside extension towards the 1.3600-1.3700 area over the coming days. While our broader outlook remains aggressively bearish with a downside target by 1.2000 in 2012, the 2012 correction within the broader downtrend off of the 2008 record highs is still in play, and shows potential for additional gains. Still, we prefer to remain sidelined as our bearish bias has us looking for opportunities to sell rather than attempting to buy into a corrective rally within a broader downtrend. We would also not rule out the possibility for a topside failure ahead of 1.3600-1.3700, but given the latest break, the risk for additional gains seems like a very real possibility that needs to be considered and anticipated. Back under 1.3350 will be required at a minimum to alleviate immediate topside pressures.

ECB_LTRO_Results_in_Choppy_Intraday_Trade_Commodity_Bloc_Rallies_body_jpy2.png, ECB LTRO Results in Choppy Intraday Trade; Commodity Bloc Rallies

USD/JPY:The market is doing a good job of showing the potential for the formation of a major cyclical bottom after taking out the 200-Day SMA and now clearing psychological barriers by 80.00 for the first time in 6 months. This further solidifies basing prospects and we could be in the process of seeing a major bullish structural shift that exposes a move towards 85.00-90.00 over the coming months. At this point, only back under 77.00 would delay outlook and give reason for concern. However, in the interim, it is worth noting that gains beyond 80.00 over the coming sessions could prove short-lived with technical studies rolling from their most overbought levels in over 10 years and warning of some additional corrective declines towards previous resistance now turned support by 78.00 before bullish continuation.

ECB_LTRO_Results_in_Choppy_Intraday_Trade_Commodity_Bloc_Rallies_body_gbp2.png, ECB LTRO Results in Choppy Intraday Trade; Commodity Bloc Rallies

GBP/USD: The market has now broken above the 200-Day SMA for the first time in several months and this now warns of the potential for additional upside above 1.6000 over the coming sessions. Still, we see any additional rallies as being very well capped ahead of 1.6200 and our strategy is to look to fade overdone intraday rallies above 1.6000 in favor of an underlying bearish resumption. Conservative traders will want to wait for confirmation on a break and close below 1.5800.

ECB_LTRO_Results_in_Choppy_Intraday_Trade_Commodity_Bloc_Rallies_body_swiss1.png, ECB LTRO Results in Choppy Intraday Trade; Commodity Bloc Rallies

USD/CHF: The market remains under some intense pressure since topping out by 0.9600 back in late December/early January, and risks from here are for deeper setbacks over the coming sessions, potentially towards the 200-Day SMA by 0.8800 before eventually stalling out. However, our broader outlook remains bullish and we will be on the lookout for the formation of the next medium-term higher low ahead of a fresh upside extension back through 0.9600 and above parity. Ultimately, only a break back below 0.8550 would compromise outlook and give reason for pause.

--- Written by Joel Kruger, Technical Currency Strategist

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