CROSS COUNTRY: MIDDAY SNAPSHOT & ANALYSIS OF SELECTED RATES

With the exception of the Yen, the USD has been well offered across the board on Thursday, with acceleration in Dollar declines post the morning event risk in the form of the unexpected decision by the ECB to cut rates by only 25bps. The market had been looking for a 50bp rate cut. Nevertheless the move to 1.25% brings the benchmark rate down to all-time lows. Trichet however did leave the door open for additional rate cuts and also hinted at the potential for the introduction of non-standard measures. The Euro remained well bid into the London fix despite this news, with the renewed optimism for a unified solution to the global financial market crisis out from G20 forcing a liquidation of safe haven trades in favor of higher yielding currencies. Also seen propping investor sentiment was the FASB vote to relax fair-value accounting for assets in distressed and inactive markets. Morning data releases out from the US hardly factored into price action with both initial jobless claims and continuing claims coming in worse than expected. The rise in continuing claims brought the data series to yet another record high. Meanwhile, US factory orders came in better than expected. All major US equity indices are much higher led by the Nasdaq up some 3.50%. On the commodity front, oil has also been surging on related correlations, up well over 7.00% while gold continues to suffer on the exodus of safe-haven trades and chatter of IMF gold sales. The Australian Dollar is the big winner on the day, up some 2.55%. Other price action worth mention has been cross related price action in Gbp/Jpy, Aud/Jpy and Nzd/Jpy which have all rallied to fresh 2009 highs today.

ANALYSIS OF SELECTED RATES

Gbp/Usd: [As per this morning's recommendation] Despite the recent rallies, the pair remains confined to a very prominent bear channel that has defined trade over the past several months. As such, any rallies should be used as opportunities to sell back into the overriding downtrend. However, at current levels, there is no compelling short trade available and a more significant rally would need to occur before we were to consider a position. The key level to watch above comes in at 1.4780 which represents the recent trend highs. We will look for this level to be taken out before establishing a playable short trade. Once 1.4780 is cleared we see little room for additional upside on Thursday with the greater risk from there for a material pullback. Strategy: SELL @1.4820 FOR A 1.4110 OBJECTIVE, STOP @1.5020. Stops to be trailed to cost on a break back below 1.4770. If trade triggers and 1.4770 not broken, position to be closed out at NY close (5pm EDT) on Thursday. Recommendation to be removed if not triggered by NY close on Thursday.


Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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