Fundys - The Euro had been well bid initially overnight with the currency showing some good follow through from Monday's well bid session. The return of risk appetite into the markets and higher global equity prices had been helping to prop, with the much better than expected overnight IFO survey (83 versus 81 expected) and news of government approved EUR50B stimulus package providing some added optimism for the region. However, any gains were well tempered ahead of the US open as the pair gravitated back towards daily opening levels just under 1.3200. Comments from ECB Quaden were also sourced as a driver of the Euro selling with the central bank official reportedly saying that the European Central Bank was ready to cut rates again. This caught the markets off guard with the comments directly opposing an earlier Ganzalez-Paramo speak that highlighted comfortability with rates at current levels. Cross related EUR/GBP sales also helped to weigh on the Euro with the UK CBI retail sales data (-47 versus -53) coming in better than expected. Aussie also managed to post some gains overnight with the local data helping to offset the recent drop in gold prices. The NAB business survey showed an improvement while Q4 PPI data came in well above forecast (1.3% versus 0.4% expected). Some early short covering in the Yen crosses help to extend USD/JPY gains to an intraday high of 90.10, but a pullback in overseas equities off of their highs weighed into the US open.
Techs - EUR/USD has managed to extend gains out from the recent 1.2765 lows with the price reaching the 50-Day SMA at 1.3330 ahead of the latest minor pullback. Look for the pair to now be well supported on dips as scope exists for additional corrective gains. Only a break back under 1.2860 negates. USD/JPY continues to slowly grind higher after basing out by the matched trend lows at 87.15. A fresh higher high today keeps the basing prospects intact with a move back over 91.30 ultimately required to accelerate. Key levels to watch above and below come in at 90.10 and 88.75 respectively. GBP/USD has been constructive since basing out by psychological barriers at 1.3500. The break back above 1.4030 today now opens a fresh upside extension which should expose next resistance at 1.4445 over the coming sessions. Dips are now seen supported by 1.3930. USD/CHF trades near daily opening levels with the pair marginally higher after posting a fresh daily lower low. With stochastics now rolling over, scope exists for a more significant pullback towards 1.1100 before considering bull trend resumption. Key levels to watch above and below come in at 1.1500 and 1.1315 respectively.
Flows - German and EU supranational selling of Euro reported into the London fixing. US custodial account rumored to be decent sized buyer of Aussie. UK clearer on the offer in EUR/GBP. Interesting price action in commodities with gold now failing by key falling-trend line resistance off of the early 2008 highs, while oil looks to be more constructive with the price attempting to break back above key resistance at 50.50 which also represents the neckline of a potential double bottom. This could spark some interest from buy-siders who might want to consider establishing a long oil/gold position over the short to medium-term.
Trade of the Day - EUR/GBP: A bearish reversal day is in the works with the market finally ending a string of 6 consecutive daily higher lows and higher highs. Despite the rally over the past few days the market had already been showing some signs of exhaustion after only making marginal higher highs on Thursday and Friday before finally reaching 0.9520 on Monday. However, inability to establish above the 61.8% fib retracement off of the 0.9805-0.8835 move has now opened the latest reversal. Daily stochastics confirm with the indicator in overbought territory and looking to roll over. Look for a break back below Monday's low to accelerate and expose a more significant downside extension back towards the recent range lows at 0.8835 (9Jan low). Only back above 0.9520 negates and gives reason for pause. Strategy: BUY @ 1.7110 FOR A 1.8000 OBJECTIVE, STOP @1.6680.