Sterling once again the big mover overnight. Eurozone industrial production weaker than expected. Euro eyes retest of 1.2705 range lows. Large demand for Yen calls. Looking to sell rallies in EUR/GBP.
FUNDYS The biggest mover in the overnight session has been Sterling with the currency being sold on the back of yesterday's dovish BoE inflation report and elevated risk aversion. This has helped to push EUR/GBP back above 0.9000 and just beyond the 20-Day SMA at 0.9065 thus far. The cross has however pulled back from the 0.9075 highs after the release of the weaker than expected Eurozone industrial production numbers coming in at -12.0% y/y after analysts had been looking for a -9.5% reading. If things weren't bad enough for the data series, November readings were also revised lower. The release of the ECB monthly report merely echoed recent sentiment, but unusually cited FX and the unprecedented levels of volatility in recent weeks. Elsewhere, Swiss consumer sentiment managed to improve but this failed to materially factor into price action. Aussie was seen attracting attention overnight, following the better than expected employment change numbers. However, the unemployment rate did still rise by more than expected to 4.8% while business confidence readings were extremely discouraging. Additionally, the news that Australia's Senate had rejected the government stimulus package, was also seen weighing. Setbacks in the antipodean were said to mitigated by higher gold prices and reports that Rio Tinto would receive a $19.5B cash injection from China's Chinalco. In an effort to quash any concerns over the fate of Sterling, UK Chancellor Darling was on the wires reassuring markets that the UK would not adopt the Euro. Darling also said that all forecasts in the UK show a very substantial downturn . Looking ahead to the North American calendar, US retail sales (-0.4% expected) and initial jobless claims (610k expected) data is due out at 13:30GMT, followed by business inventories (-0.9% expected) at 15:00GMT.
TECHS EUR/USD extends declines into Thursday with the market making fresh weekly lows and eyeing a direct retest of the recent range lows by 1.2705. A break back above 1.3000 over the coming session would be required to remove downside pressures. USD/JPY is looking to put in its 4th consecutive down-day with a break below Wednesday's 89.70 lows to likely accelerate the decline to 89.20. Key short-term resistance comes in by 90.75. GBP/USD remains very well offered into Thursday with the market set to test the early February higher platform at 1.4055 (2Feb low). Meanwhile, 1.4415 is seen capping intraday rallies. USD/CHF remains locked in a bullish consolidation with the market seemingly content on chopping around for now. Key levels to watch above and below come in by 1.1785 and 1.1560 respectively.
FLOWS Russian spec accounts and hedge funds on the offer in EUR/USD ; UK and German accounts on the bid. UK macro, model fund and French bank all on the offer in Cable . Asian accounts have been selling E UR/GBP . US investment house has been buying USD/CAD . Large demand overnight for Yen calls. Solid bids in gold on safe haven flows as ETF bullion holdings hit record highs.
TRADE OF THE DAY - EUR/GBP : The 50-Day SMA had been a big supporter of the cross on dips for much of the up-move to life-time highs in the latter months of 2008. On January 30, the market finally broke back below the 50-Day SMA to signal a shift in the overall structure and likelihood of a major top by 0.9805 (30Dec high). Now, we are looking for the former moving average support to act as a resistance point and will sell into rallies to the 50-Day SMA which currently comes in by 0.9135. The daily Average True Range (ATR) stands at 185 pips, and based off of the current daily low of 0.8955, projects a potential high of 0.9140 today, which almost directly coincides with the 50-Day SMA. Strategy: SELL@ 0.9135 FOR A 0.8635 OBJECTIVE, STOP @0.9220. RECOMMENDATION TO BE REMOVED IF 0.9135 NOT HIT ON THURSDAY.