Obama plan passes but not encouraging with zero Republican votes. Cable mounts impressive recovery from intraday lows. More talk of oil production cuts out of Davos. Technical studies point to additional broad based Sterling appreciation.


Fundys - The positive reaction to the passage of President Obama's $825B stimulus has fallen by the wayside after the plan received zero votes on the Republican side, to damage any hopes that the market had for a unified and bipartisan mentality within the new government. This has no doubt contributed to the pullback in US equity futures and lackluster performance in overseas markets with the FTSE and DAX dropping back some 1.5% and 1.0% respectively. Overnight data releases in the Eurozone were less than impressive with German unemployment nearly doubling market expectations for a 30k print to come in at an alarming 56k, while confidence was seen lower from the previous month. Also seen weighing on theEurowere more dovish comments out from Trichet who said he would not exclude rates going below 2.0%. This helped to act as an additional strain on EUR/USD which dropped to a session low at 1.3025 before finally finding some bids into the US open. UK Nationwide housing data while still showing a further deterioration y/y, came in better than expected at -1.3% against forecasts for a -1.7% print. The data out of the respective regions has forced additional liquidation in long EUR/GBP positioning with the cross rate extending declines below 0.9150 thus far. USD/JPY has given back about half of Wednesday's sizeable gains with the lower equity prices and comments out from Asian Development Bank Kuroda that the Yen is not overvalued, seen as the primary drivers of price action. Kiwi was also a standout currency after the RBNZ cut rates by 150bps (larger than expected) to 3.50%. This in conjunction with dovish Bollard comments helped to open a drop to fresh multi-year lows at 0.5125 before finding some relief in the late European morning.

Techs - EUR/USD pullbacks have been limited to 1.3025 today with the price finding some support by the 50% fib retracement off of the 1.2765-1.3330 move. Outlook remains constructive while above 1.2765 and look for a higher low by 1.3025 ahead of fresh upside beyond 1.3330. Key levels to watch over the coming session come in at 1.3180 and 1.3025. USD/JPY recovery out from the 87.15 matched trend lows has stalled by 90.70 with the market in the process of consolidating Wednesday's gains. The market needs to break back above 91.30 to accelerate to the upside and remove intense downside pressures. Key levels to watch come in by 90.70 and 89.00. GBP/USD weakness has been well supported overnight by 1.4070 and despite the break below Wednesday's 1.4125 lows, remains quite constructive and shows room for additional upside. Look for a break back above 1.4375 over the coming session to open a direct test on 1.4500. USD/CHF gains have failed to extend considerably into Thursday with the price retreating after posting marginal higher highs by 1.1585. It remains unclear whether the market is looking to put in a lower top by 1.1585 or higher low at 1.1315. These will be the key levels to watch.

Flows - Large UK clearer bidding huge amounts of GBP/USD. Heavy stops tripped below 0.9200 in EUR/GBP. Major US investment house bidding in EUR/USD ahead of 1.3000 earlier; Eastern European names on the offer. More talk of oil production cuts from OPEC Secretary General Badri while Azerbaijian has also said they would try to contribute to oil cuts. Downbeat comments out of Davos on Chinese growth prospects have contributed to recent gold declines.

Trade of the Day - GBP/USD: Price action thus far today has been quite interesting with the pair initially trading lower to take out the previous daily low, ending a sequence of 4 consecutive daily higher lows, before reversing sharply to trade back towards daily opening levels. While the overall trend is indeed grossly bearish, our outlook for the pair remains constructive with inter-day studies still showing plenty of room for corrective upside before bear trend continuation. Recently, much of the broad based USD buying in the European sessions have been offset by more aggressive USD selling in North American trade. While the pullback to 1.4070 is concerning, we will wait to see if that level is tested again in the US session. Our contention is that the 1.4070 level will hold and the market will eventually trade back above 1.4375 (28Jan high) to keep the recovery structure intact. Strategy: BUY @ 1.4385 FOR A 1.5000 OBJECTIVE, STOP @1.4040.