MORNING SLICES
Fundys – Price action has been somewhat subdued overnight, on the back of Golden Week in Japan and a May Day bank holiday in the UK. However, investor sentiment has still managed to hold up thus far into the early stages of the new week, with market correlations looking comfortably familiar. The healthier risk appetite has resulted in an outperforming NZD and underperforming Yen. On the data front, German retail sales kicked off the European session of trade and were much weaker than expected following some downward revisions to the previous month. Market participants had been anticipating a -0.3% y/y reading and were grossly disappointed with the -1.5% y/y result. Subsequent PMI data releases in the region were however somewhat offsetting with German, Eurozone and Swiss PMI all coming in better than expected. Meanwhile, the European Commission downwardly revised its growth and inflation forecasts in the Eurozone, with the new projections showing a 4% contraction for 2009, sharply contrasting previous forecasts which called for 0.1% growth. The Euro was weighed down by this disclosure, although EU Almunia and ECB Weber were on the wires shortly thereafter offering some stabilizing comments. Elsewhere, many traders were paying attention to ex-MOF Sakakibara who said that he would not be surprised if the Yen weakened some more on deteriorating Japanese fundamentals, warning that the Usd/Jpy rate could rise to 100.00-110.00 over the next 3 months. Looking ahead, US pending homes sales ( 0.0% expected) and construction spending (-1.5% expected) are due at 14:00GMT, while on the official circuit, Fed Hoenig speaks in New York on the financial crisis at 16:30GMT and Fed Lacker speaks on the economy in Charlottesville at 18:00GMT. Many investors will also be keenly focused on developments and rumors surrounding the “stress tests” that are scheduled for release later in the week. US equity futures point to a 0.5% higher open, while on the commodity front gold is up some 0.65% at $892 and oil is flat by $53.
Techs - EUR/USD continues to consolidate following the latest rally to 1.3390. Daily studies are mixed and a break back above 1.3390 or below 1.3195 is required for clearer directional bias. USD/JPY well supported on dips to Friday’s lows with the market rallying yet again and eying a push back above 100.00 over the coming session. There is some solid resistance by 100.20 in the form of the 78.6% fib retrace off of the 101.45-95.60 move. GBP/USD gains have once again stalled out ahead of 1.5000, and scope exists for a bearish reversal at current levels. A break below 1.4750 would be required to confirm, while back above 1.5000 exposes the recent trend highs by 1.5070. USD/CHF is still flirting with the 200-Day SMA as the pair consolidates the latest round of setbacks off of the 1.1740 high from mid-April. Key levels to watch come in by 1.1450 and 1.1270 with a break above or below required for clearer directional bias.
Flows – Stops building in the Euro on both sides at 1.3190 and 1.3400. Usd/Jpy offers heard ahead of 100.00 with stops above the psychological barriers. UK clearer reported on the offer in Cable ahead of 1.5000. Usd/Cad demand into 1.1800; buy-stops above 1.1955.
Trade of the Day – Usd/Cad: Has pulled back quite sharply over the past several days with the market breaking to fresh multi-day lows below the 200-Day SMA to 1.1800 thus far. While the current pullback changes the picture somewhat, the broader structure still remains constructive with the market locked in a longer-term bullish consolidation dating back to October of 2008. As such, any dips towards the bottom of the range should be used as opportunities to establish long positions in anticipation of a move back into the mid-range at a minimum. We recommended this trade on Thursday and Friday but our entry level was not hit. We will look to get involved today and pick up some USDs on a dip into the previous support zone from early January (see Jan6-12 lows). Strategy: BUY @1.1780 FOR A 1.2270 OBJECTIVE, STOP @1.1630. Stops to be trailed to cost on a break back above 1.1830. Stops to be trailed to cost on a break back above 1.1830. If trade triggers and 1.1830 not broken, position to be closed out at NY close (5pm NY time) on Monday. Recommendation to be removed if not triggered by NY close on Monday.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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Joel Kruger publishes 6 daily pieces:
“Tech Talk” – A Daily Video Highlighting Technical Developments in the Overnight Session of Trade.
Monday-Friday (between 5:30am-6:30am EST)
“Morning Slices” – Morning Overview using Fundamental, Technical, Flow, and Quantitative Analysis (Includes “Trade of the Day”).
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“Indicator of the Day” – A Feature Report that Highlights our Most Significant Technical Indicator of the Day.
Monday-Friday (between 8:00am-9:00am EST)
“Cross Country” – A Midday Fundamental Update, along with Technical Analysis of Selected Cross Rates.
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“Daily Classical” – A Daily Technical Overview of the Major Currencies.
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