The primary driver of price action in the overnight session came on the back of news that Citibank could be partially nationalized by the US government. Euro stalls ahead of 1.3000 while Dollar/Yen finally clears key 94.60 neckline. Swiss, German and Asian central bank names on the offer in Euro. We have sold Dollar/Yen at 94.70.
Fundys -Lots of talk of a fairly illiquid session of trade overnight despite the significant moves. Initially, we had seen some good follow through from the momentum in the previous week, with broad based USD selling and carry buying. This took the Euro up to session highs just shy of key psychological barriers at 1.3000 before finally reversing course. The most interesting development overnight from a price action stand point was the break in Dollar/Yen above 94.60, the 2009 high and neckline of a major inter-day double bottom pattern. This sparked some heavy stop-loss buying through option barriers at 94.70, all the way to 94.95, before finally stalling out. The primary driver of price action in the overnight session came on the back of news that Citibank could be partially nationalized by the US government, while a French injection of liquidity into some local banks was also seen helping to prop the Euro. However, this would not last, with the Euro coming back under pressure later in the session after Trichet came on the wires with some downbeat comments, while EU Almunia said that the EU may need to bail out a European country. Also seen weighing somewhat was a softer Italian inflation reading and report from Fitch expressing concern for Austria's credit rating. UK PM Brown was on the wires stressing the importance for aid to CEE banks in order to support the beleaguered banks and prevent the contagion from spreading. Looking ahead, the North American calendar is light with Canada retail sales (-2.7% expected) due at 13:30GMT followed by Dallas Fed manufacturing (-50% expected) at 15:30 GMT. On the Fed circuit, Lockhart is slated to speak on the US economy in Orlando at 17:40 GMT followed by Fisher appearing at Harvard at 23:00 GMT on the financial crisis.
Techs - EUR/USD upside follow through from Friday's bullish daily and weekly close has been discouraging with the market trading just shy of 1.3000 today before reversing sharply back to and slightly below daily opening levels at 1.2825. The market has now already fulfilled its daily range requirement of 225 pips and as such, price action is not expected to deviate much from the 1.2995-1.2765 area on Monday. USD/JPY (See Below). GBP/USD price action looks constructive on Monday with the price surging to easily exceed the 50-Day SMA at 1.4560 before finally stalling out by 1.4665, the 61.8% fib retrace off of the 1.4990-1.4095 move. The pair has had a hard time however establishing above the 50-Day SMA for any considerable length of time, and while below 1.5000, selling into rallies remains the preferred strategy. Key levels to watch over the coming session come in by 1.4655 and 1.4365. USD/CHF has been unable to extend setbacks following Friday's extremely bearish outside, after price action consumed the previous 11 day range. The result, has been a reversion back into the middle of a very familiar and choppy range trade. Key levels to watch over the coming session come in by 1.1700 and 1.1465.
Flows - Macro account demand for Kiwi; offers ahead of 0.5200. US custodian account and UK clearer on bid in Cable; French offers in Eur/Gbp; Russian and UK clearer buying Gbp/Jpy, all propping Sterling. Swiss, German and Asian central bank names on the offer in Euro.
Trade of the Day - USD/JPY: Friday's bearish reversal day has now been negated with the market rallying back to finally clear critical resistance at 94.60, the 2009 high and neckline of a major double bottom. However, while the pair trades at or near 94.60, the overall structure still remains grossly bearish and at a minimum, we would need to see a sustained break above 94.60 to confirm a material base and suggest a legitimate reversal in the trend. Daily studies have begun to look stretched and with stochastics already overbought and the RSI on the verge, we favor a scenario in which the 94.60 level will be cleared with limited additional upside, before the pair ultimately reverses course for bear trend resumption. We contend that even if today's break of 94.60 should signal a shift in the trend, the overbought daily studies would more likely than not open a short-term pullback before the market would even consider a fresh upside extension back above 94.60 and beyond. Position: SHORT@ 94.70 FOR A 92.55 OBJECTIVE, STOP @95.70. STOPS WILL BE TRAILED TO COST ON A BREAK BACK BELOW 94.00.
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