Very Dovish BoE Inflation Report Signals More Rate Cuts. Offsets Jobs Data. Swedish Central Bank Cuts by More than Expected. Staggering 17.5% Drop in Exports out of China. USD/JPY Falls Back Out of Cloud. More SNB Intervention Talk. Looking to Buy EUR/JPY on Dip Using ATR Analysis. US Trade Data Due Up.
FUNDYS - More doom and gloom in the overnight session of trade with the UK inflation report front and center. The report caught the markets off guard coming in more on the dovish side following the disclosure of additional downward revisions to growth and inflation forecasts. This in conjunction with BOE Governor King's outright admission that the UK was in a deep recession , and that the BoE would be cutting rates some more , prompted a fresh wave of broad based Sterling selling, with notable cross related demand for EUR/GBP . King also did not help on the FX side after saying that a weaker Pound would help to boost demand . The inflation report more than offset any positive news out from the earlier release of the UK jobs report which exceeded expectations. Yet another reflection of the unstable global macro environment came initially out of China with a staggering 17.5% drop in exports and later out of Sweden , with the Riksbank announcing a more aggressive 100bp rate cut than had been expected to 1.00%. The market had been looking for a 50bp cut, but a further deterioration within the local economy could not be ignored, forcing the Swedish central bank into an even more accommodative policy. In the Eurozone , CPI data came in as expected and did not factor into price action but more dovish comments from ECB Gonzalez-Paramo and Quaden did manage to generate some Euro offers. Looking ahead, the markets will continue to digest the recent Geithner rescue plan and await the passage of the Obama stimulus plan. On the data front, key event risk comes in the form of trade data both out of the US (-36.0B expected) and Canada (0.5B expected) due at 13:30GMT. Also due out is Canada housing data at 13:30GMT and the US monthly budget statement later in the day at 19:00GMT. On the Fed circuit, Fed Duke is slated to speak in New York on the housing market at 14:50GMT, while Fed Evans will be on the wires from Iowa at 18:00GMT providing an outlook on the US economy.
TECHS - EUR/USD price action has been confined to Tuesday's bearish range and the market continues to consolidate in choppy fashion. Key levels to watch over the coming session come in by 1.3095 and 1.2850 with a break above or below required for directional bias. USD/JPY continues to grind lower after falling back out of the Ichimoku cloud on Tuesday. This puts the pressure back on the downside with a direct retest of next support at 89.20 seen over the coming session. Back above 90.55 will be required to negate. GBP/USD setbacks continue to extend following Tuesday's extremely bearish price action. The market looks to be attempting to carve out yet another lower top by 1.4990 but will need to break back below 1.4055 to accelerate the decline and expose 1.3500. Key levels to watch over the coming session come in by 1.4570 and 1.4325. USD/CHF price action suggests that we could be headed lower before resumption of the broader up-trend. The market has once again stalled out above 1.1700 at 1.1785 before reversing sharply on Tuesday. Key levels to watch here over the coming session come in by 1.1625 and 1.1500.
FLOWS - Talk of potential intervention out of the SNB propping EUR/CHF setbacks. Stops triggered below 1.4390 in Cable while stops tripped above 0.9015 in EUR/GBP . UK clearer buyer of Cable; Asian central bank was on the offer overnight. Supra-National on the offer in EUR/GBP. Models and non-leveraged funds on the bid in Aussie .
TRADE OF THE DAY - EUR/JPY: Price action has been most discouraging for bulls with the market rolling back over after just taking out the key short-term neckline high by 119.55 (28Jan high) to 120.05 on Monday. However, gains could not be sustained and Tuesday saw some heavy selling to end a sequence of 3 consecutive up-days of higher highs and higher lows. Nevertheless, the picture has not changed and bulls should still find comfort in the bullish outside week put in last week. While the overall structure remains grossly bearish, recovery prospects are still intact while above 113.15 (previous weekly low). As such, we recommend looking to buy on dips today, if the right opportunity presents itself. When looking to counter-trend we always incorporate Average True Range (ATR) into our analysis. The daily ATR on the cross at present is just over 300 pips. Based off of the current high at 117.00, should the cross meet its ATR on the downside, we would see a low somewhere just under 114.00 today. The 114.00 area has proved to be a solid support zone over the past several days and as such, we recommend buying on a dip to the latter in anticipation of a sharp bounce back towards the range highs. Strategy: BUY@ 113.95 FOR A 120.05 OBJECTIVE, STOP @111.90. RECOMMENDATION TO BE REMOVED IF 113.95 NOT HIT ON WEDNESDAY.