The fallout from the downbeat Fed Minutes continues into Thursday with market sentiment shifting as global equities start to pull back. However, currencies remain relatively well bid against the Greenback, with the exception of Sterling and Aussie which are both notably lower on the day. The S&P downgrade on their outlook for the UK economy has been the biggest headline overnight.
MORNING SLICES
Fundys – The fallout from the downbeat Fed Minutes continues into Thursday with market sentiment shifting as global equities start to pull back. However, currencies remain relatively well bid against the Greenback, with the exception of Sterling and Aussie which are both notably lower on the day. Earlier this morning in a surprise announcement, S&P downgraded their outlook to negative from stable for the UK economy which caught many off guard and was used as a good opportunity for profit taking on long positions. This easily offset any positive reaction from the better than expected retail sales, with the higher PSNCR, disappointing business investments, and weaker BoE trends in lending report also helping to weigh. In response to the S&P downgrade, a spokesperson for the government said that it would look to halve the deficit in 5 years time. Aussie fell in sympathy to the GBP moves, with the recent news that Moody’s had downgraded its Queensland AAA rating to AA1 resonating with traders. In the Eurozone, PMI data was across the board better than expected with the manufacturing component standing out, crossing above 40 for the first time since October 2008. Price action in Usd/Jpy has been interesting with the market rallying ahead of the NY open back to daily opening levels by 95.00 after falling to 94.30 overnight. There was some talk of BoJ rate checks which could have been helping to bolster the pair. Looking ahead to the North American session, US initial jobless claims (625k expected) and continuing claims (6650k expected) are due at 12:30GMT, along with Canadian international securities transactions (4.0B expected) and wholesale sales (-0.8% expected). RPX housing data follows at 13:00GMT, while the Philly Fed (-18.0 expected) and leading indicators (0.8%) expected are due at 14:00GMT. On the official circuit, Treasury Secretary Geithner testifies in front of the House Financial Subcommittee at 14:00GMT. Fed Plosser speaks to investors in New York at 23:00GMT, while Fed Rosengren speaks in Massachusetts at 23:30GMT. Oil is trading lower today with some sourcing the retreat to rumors that OPEC will not cut production at next week’s summit. US equity futures point to a lower open.
Quant –
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Techs - EUR/USD trading flat on Thursday thus far following the latest impressive gains beyond the former 1.3740 trend highs. Next key resistance comes by 1.3850 which represents the 61.8% fib retracement off of the 1.4720-1.2455 move. Daily studies are starting to look stretched and we see any additional upside limited to the 1.4000 area. Look for a break back below 1.3740 to take the pressure off of the topside and potentially open the door for a more significant pullback. USD/JPY has broken back below the 100-Day SMA and bottom of the Ichimoku cloud to shift the focus back on the downside and potentially expose an eventual retest of the critical 87.15 trend lows. A break back below 94.30 will confirm bearish bias, while a close back above the 100-day SMA and cloud bottom by 95.00-95.35 delays. GBP/USD has pulled back quite sharply on Thursday after rallying to fresh yearly highs by 1.5820 overnight. However, with the daily RSI crossing above 70 we had warned of the potential for such a pullback and will be looking for some more weakness over the coming days. Setbacks have stalled out by former resistance turned support in the form of the 200-Day SMA thus far and a break below 1.5450 will be required to accelerate declines. USD/CHF (See below).
Flows – German and US names on the bid in Usd/Jpy. Middle Eastern and Russian buyers of Euro. Asian central bank bids in Aussie. Japanese pension funds selling Eur/Jpy.
Trade of the Day – Usd/Chf: We have talked about the coiling of the major moving averages in the pair for the past several days with the development suggestive of a major breakout ahead. Our bias continues to be to the upside with daily studies now approaching oversold and the risk for a bullish reversal. However, we will refrain from chasing our entry and will look to buy on a dip today down towards next key support which resides at 1.0865 (08Jan low). Using ATR (Average True Range) analysis, today’s projected low comes in at 1.0885 and we will set our entry just over this level. Ultimately, we would be looking for the 10-Day SMA to start to reverse course and put in a positive cross back above the 20/50/100/200-Day SMAs to confirm outlook. Strategy: BUY @1.0890 FOR A 1.1250 OBJECTIVE, STOP @1.0740. Stops to be trailed to cost on a break back above 1.0940. If trade triggers and 1.0940 not broken, position to be closed out at NY close (5pm NY time) on Thursday. Recommendation to be removed if not triggered by NY close on Thursday.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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Quant section prepared by David Rodriguez, Quantitative Strategist for DailyFX.com
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