Eurozone unemployment higher than expected. UK mortgage approvals come in better than consensus. Sterling still showing relative strength despite broad based USD buying. Central European currencies hit hard. Kiwi approaching critical psychological support at 0.5000.
Fundys - Some more of the same flight to safety buying overnight with both the USD and Yen benefiting across the board on the back of renewed buying in the flight to safety currency trade. In data released overnight, the Eurozone unemployment rate rose to a 2-year high of 8.0% to come in above the consensus 7.9% estimates, while Eurozone inflation data came in softer than expected at 1.1% after a 1.3% expectation. Meanwhile in the UK, mortgage approvals for December came in above consensus at 31k after analysts had been looking for 26k. The data out of the regions is starting to show a shift in sentiment towards the respective economies as reflected in the pick-up in EUR/GBP cross related selling over the past week. ECB Liikanen was however on the wires Friday with some rather hawkish talk, to mitigate the broader Euro selling, warning against excessively accommodative monetary policy and questioning whether current policy was too light. BoE Blanchflower was also on the wires talking dovish and warning of prolonged economic underperformance. SNB Roth was once again on the wires to prop his currency by saying that he was seeing no brutal moves in exchange rates. Kiwi broke to fresh multi-year lows overnight trading to 0.5075 and just shy of key psychological barriers at 0.5000 on more dovish talk from central banker Bollard who warned of more interest rate cuts. More talk speculation emerged on the upcoming G7 and the potential for more coordination on FX policy. Global equity prices are flat while US equity futures point to a slightly higher open. Commodities are tracking modestly higher.
Techs - EUR/USD looking rather heavy with the market failing on the topside by 1.3330 and now eyeing a retest of the recent range lows at 1.2765. These are the key level to watch with a break above or below to determine directional bias. USD/JPY price action continues to show sideways consolidation with the market caught trading within Wednesday's 90.70-88.90 range. Look for a break above or below the latter to open acceleration and provide more clarity. GBP/USD trades by daily opening levels and continues to show relative strength across the board. The recovery structure remains intact and favors fresh upside beyond 1.4410 over the coming hours. Key short-term levels to watch come in at 1.4410 and 1.4185 respectively. USD/CHF trades within a bull channel off of the late December 1.0370 lows and is in the process of attempting to carve out a fresh higher low by 1.1315 to be confirmed on a break back above 1.1715. Key levels to watch in New York come in by 1.1645 and 1.1515.
Flows - Stops tripped in Cable on the break above 1.4275 this morning. Heavy sell stops take out below psychological barriers in EUR/GBP at 0.9000. Macro funds on the bid in EUR/USD . Russian Rouble drops sharply against the Buck hitting historic levels. CE3 (HUF, CZK, PLN) currencies continue to get slammed with the HUF leading the way. More threats of oil production cuts from OPEC out of Davos.
Trade of the Day - NZD/USD: The market has descended to fresh multi-year lows below 0.5100 thus far today. While the overall structure is clearly intensely bearish, daily technical studies are starting to warn of a major corrective upswing. Next key support for the pair comes in by 0.5010, which coincides with the previous breakout highs from June 2002. While we would expect to see a test of this level, we do not expect setbacks to extend much further before a healthy bounce, especially considering the formidable psychological support by 0.5000 which should see some decent sized profit taking across the board. As contrarians, we often like to look at the Average True Range (ATR) of an instrument to give us a better sense of compelling risk/reward trade ideas. This is a necessary step to take, particularly in the current markets where counter-trend trading can be so dangerous. Nevertheless, the best bull opportunities come within bear markets and as such, we continue to look for attractive counter-trend trading ideas. The monthly ATR has been well exceeded and both the weekly and daily ATRs project a potential downside move to retest the June 2002 highs by 0.5010 today. While the ATR only gives a trader an average projected range, it still is a useful tool to anticipate the full extent of a market move within a given timeframe. As such we will be looking for an opportunity to establish a long trade on a test of the 0.5010 support. Strategy: BUY @ 0.5010 FOR A 0.5380 OBJECTIVE, STOP @0.4890. Recommendation to be Removed if Entry Price Not Hit Friday.