Market Brief
The headline event of the day was the BoE meeting where MPC members voted to maintain interest rates at 0.5%, but more significantly, chose to increase their asset purchase target by only GBP25bn (vs. consensus estimates for 50bn). The smaller-than-expected expansion of the QE program caused a rapid spike in GBPUSD from 1.6500 to 1.6600, as markets perceived this move signaled a less severe assessment of the UK economy by the MPC than the bearish press commentary that has prevailed since the GDP number. Policy-makers did however explicitly say that they would keep the size of the Asset Purchase Program under review, leaving the door open for further expansion if necessary later. Nevertheless, the surprisingly optimistic tone of the statement - that suggested a pick-up in UK economic activity may soon be evident, and cautioned that inflation is likely to rise 'sharply' in the near term - caused a rapid exit of many GBP-shorts that have weathered the rally until this point, and helped GPBUSD to push above 1.6605 previous resistance to touch a high of 1.6636. The pair has since pared back gains after meeting steady supply above 1.6600, and is currently still at elevated levels around 1.6570. Resistance remains for now just around 1.6650 and thereafter 1.6700, but a break above there would likely target 1.7000.

Following shortly after the BoE we had the ECB rate announcement where rates were kept on hold as expected at 1.0%. Aside from the more encouraging outlook on the economic recovery, Trichet kept very much to the same message as in previous meetings; namely that current rates are 'appropriate' and inflation expectations in the medium and long term are firmly anchored. EURUSD rallied on the mention that not all of the liquidity measures currently in place would be needed in the future, but the currency rally (much of which had pre-empted Trichet by rising in sympathy with GBPUSD earlier), again struggled in the face of supply between 1.4910-20 (high 1.4917). As with previous press conferences, Trichet refused to be drawn into a comment on the level of EURUSD strength, and instead reiterated that a strong USD is in the US interest.

There were a number of other releases during the day, including Swiss CPI which posted a disappointing -0.8% YoY change for Oct against consensus forecasts for a -0.7% print (-0.9% prior). Given the SNB's commitment to warding off deflation by keeping the CHF weak (supported by policy-maker Jordan in a recent interview), the reading reinforces our view that the SNB will continue to intervene in EURCHF, and we like to buy on dips from 1.5100to 1.5080.

Although somewhat overshadowed by the impending central bank events, there was positive data from the UK data as Industrial Production gained 1.6% MoM vs. 1.2% expected, and Manufacturing Production climbed 1.7% MoM vs. 1.0% expected. Eurozone Retail Sales on the other hand was well below expectations, posting a -0.7% MoM change in Sep vs. expectations for a 0.2% gain.

As a busy week of data winds down, there are still a handful of significant releases to expect on Friday. After the FOMC statement expressed that subdued inflation and the deteriorating labour market were the major hurdles to a change in policy stance, tomorrow's Non-Farm Payrolls have increased in importance. A poor number should ensure the Fed remains in accommodative mood (positive for EURUSD, equities, gold), whilst evidence that employment levels are improving may give ammunition to the Fed to shift to a more hawkish tack (expect a USD rally). Overnight we will also get the RBA's Quarterly Monetary Policy Statement, while the rest of the session promises Norwegian Industrial Production, UK PPI, Canadian Unemployment and US Wholesale inventories.

Currency Tech
EURUSD
R 2: 1.4930
R 1: 1.4910
CURRENT: 1.4874
S 1: 1.4700
S 2: 1.4625

GBPUSD
R 2: 1.6740
R 1: 1.6690
CURRENT: 1.6580
S 1: 1.6405
S 2: 1.6240

USDJPY
R 2: 91.60
R 1: 91.30
CURRENT: 90.52
S 1: 90.05
S 2: 89.25

AUDUSD
R 2: 0.9220
R 1: 0.9145
CURRENT: 0.9101
S 1: 0.8970
S 2: 0.8905

USDCAD
R 2: 1.0960
R 1: 1.0870
CURRENT: 1.0642
S 1: 1.0598
S 2: 1.0505

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