MORNING SLICES

Fundys - Not a very encouraging bout of price action heading into the final session of trade for the week, with traders fleeing out of risky positions in favor of the flight to safety trade. The higher yielding commodity currencies have been hit the hardest on the back of some broad based USD buying, lower equity futures and marginally lower commodity prices. Meanwhile the Euro has also come under some intense pressure following the very unimpressive and much weaker than expected GDP data out of both Germany and the Eurozone. Technicians now cite a major hourly head & shoulders topping pattern that should see some downside acceleration on a break below 1.3525. Eurozone CPI data was released coming in rather mixed with the better headline offset by downward revisions to the previous month. Elsewhere, Swiss retail spending was extremely misleading after showing growth in the headline print. However after adjusting for holiday shopping the number was far from positive coming in at -6.6%. ECB Nowotny was on the wires attempting to downplay any concerns over a split ECB, saying that he saw no diversion among members. IMF Chief Strauss-Kahn gave a balanced outlook on the global economy, saying that there were still risks for a recovery in the first half of 2010, but that there were also signs of hope. Also gaining some attention overnight was the recent Dr. Doom Roubini article entitled China's Yuan Set to Usurp USD as the World's Currency. Looking ahead to the North American session, US CPI (-0.6% expected), empire manufacturing (-12.00 expected) and Canada manufacturing shipments (1.0% expected) are due at 12:30GMT, followed by TIC flows ($22.5B expected) at 13:00GMT, industrial production (-0.6% expected) and capacity utilization (68.8% expected) at 13:15GMT, and Reuters/UofMich confidence (67.0 expected) at 14:00GMT. On the official circuit, Fed Fisher speaks at 13:15GMT.

Quant -



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Techs - EUR/USD (See below). USD/JPY extends declines into Friday with the market breaking down below psychological barriers at 95.00. From here the risk is for a challenge of next support by 93.55-94.15 over the coming hours. However, daily studies are starting to look stretched and we would caution bears at current levels. Back above 96.20 now required to take pressure off of the downside. GBP/USD continues with the remarkable up-down pattern since last Wednesday with the pair tracking lower thus far but still confined to Thursday's ranges. Key levels to watch over the coming session come in by 1.5250 and 1.5060. USD/CHF is looking like it wants to establish an interim base by 1.0975, with the pair caught in some choppy consolidation since basing below 1.1000 on Wednesday. Key levels to watch over the coming session come in by 1.1125 and 1.1025.

Flows - Russian and spec demand in Usd/Jpy; US prime name on the offer. Asian central bank bids in Aud/Nzd. Japanese life company selling Aud/Jpy. Corporate and option related bids in Aussie. M&A activity in Cable relating to potential Barclays sale of BGI to Blackrock.

Trade of the Day - Eur/Usd:
There is a major head & shoulders top forming on the hourly chart which looks like it could be triggered today to initially open some steep setbacks. However, we see these setbacks limited to the 200-Day SMA and we will look to establish a long trade just ahead of the longer-term moving in anticipation of a nasty reversal back to the upside to the 1.3740 trend highs. Once 1.3740 is taken out, we may then once again start to look for opportunities to sell the Euro. We realize that our entry for the trade is quite a ways a way and will be happy to stay on the sidelines should our entry level not be met on Friday. Markets remain extremely choppy and we need to proceed with caution. Strategy: BUY @1.3430 FOR A 1.3740 OBJECTIVE, STOP @1.3290. Stops to be trailed to cost on a break back above 1.3470. If trade triggers and 1.3470 not broken, position to be closed out at NY close (4pm NY time) on Friday. Recommendation to be removed if not triggered by NY close on Friday.



Fundamental Catalyst -
Some very concerning data releases out of the Eurozone overnight with both German and Eurozone GDP coming in much weaker than expected to weigh on the major. However, despite the weaker economic releases, we believe the Euro has held up quite well with many real money accounts, model funds and larger global macro players still looking to be short the USD on an expectation that the global economy is bottoming. While this may not be the fundamental opinion that we share, we also can not fight the price action and should look to take advantage of the influence of the larger FX participants. Additionally, our own speculative sentiment index still shows retail traders net short of the Euro which is often a good contrarian indicator. Finally, we have a hard time believing that the Euro has rallied all this was and will fail to take out the next key resistance by 1.3740. As such, we will look for an opportunity to buy into dips today.


Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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Quant section prepared by David Rodriguez, Quantitative Strategist for DailyFX.com
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Joel Kruger publishes 6 daily pieces:

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