Bank of England unanimous in vote to seek government approval for quantitative easing. Risk reversals point to more USD gains. Euro seen well offered on rallies to previous support. System funds focused on Sterling/Yen 20-Day SMA. Looking to buy Dollar/Yen.
Fundys - Not much in the way of any significant developments in the overnight session with the markets seemingly content on taking a breather following the previous day's volatility. Key event risk came in the form of the BoE MPC Minutes which were as expected after revealing a 8-1 split at the previous meeting with Blanchflower as the lone dissenter, voting for a more aggressive 100bp cut. The Bank of England was also unanimous in their vote to seek government approval for quantitative easing. On the data front, UK CBI industrial orders showed a further deterioration with the lowest print since 1992 at -56, from a previous monthly print of -48. Most of the price action in Cable however, came from a Daily Telegraph article headlined Britain's credit rating threatened by scale of bank bail-out, with the Pound taking a hit in early Europe on the news but later recovering. ECB Stark has been on the wires with some more upbeat comments saying that he expects stimulus packages to have an effect on the economy by the end of 2009. German Chancellor Merkel has approved a draft law to nationalize beleaguered local banks. Ex-MOF Gyohten was also on the wires saying that there is no currency that can replace the USD. Elsewhere, there has been more talk out of Switzerland of potential SNB intervention. Looking ahead, the North American calendar Bernanke address at the National Press Club in Washington at 17:00GMT, and the Fed Minutes due shortly after at 19:00GMT. is stacked with data releases and speakers. Key events to watch will be the
Techs - EUR/USD continues to trade with a heavy tone following Tuesday's break of the descending triangle base. Expect rallies to be limited to the 1.2700-50 area (former support turned resistance) ahead of deeper setbacks to retest the key trend lows by 1.2330 (28Oct low) over the coming days. Key level to watch in the US session come in by 1.2640 and 1.2550. USD/JPY (See Below). GBP/USD still is in the process of consolidating following the latest drop off of bear channel resistance by 1.4990 (9Feb high). A higher platform base at 1.4055 (2Feb low) has managed to prop setbacks for now, but ultimately we expect this level to be taken out for a full retracement back to the 1.3505 (23Jan low) trend lows. Key levels to watch over the coming session come in by 1.4300 and 1.4095. USD/CHF has been grinding higher in the early week but still remains capped below the recent range highs at 1.1785. Look for a break and daily close above the latter to open a fresh upside extension back towards an eventual retest of the 1.2300, 2008 highs. Key levels to watch above and below come in at 1.1785 and 1.1650.
Flows - Asian central bank demand for Cable and Aussie; US investment house and Semi-official offers. System funds focused on 20-Day SMA in GBP/JPY just under 130.00. Semi-official demand for EUR/USD; French bank on the offer; option barrier tipped at 1.2550. London fix related demand for Kiwi. Talk of another large stock build from tomorrow's crude data.
Trade of the Day - USD/JPY: Price action in the major is starting to look more constructive after the latest round of setbacks off of the early January 2009 highs stalled out perfectly by 87.15, to match the previous trend lows from December. With weekly stochastics just having crossed up from oversold, there is plenty of room for gains to run over the coming weeks. The market had been trading below the daily Ichimoku cloud since mid-September but the current push higher is threatening this trend. The top of the cloud currently resides at 93.85 and a move back above will undoubtedly attract fresh bids. Another potential bullish formation that could be taking hold on the weekly chart is a textbook double bottom with neckline resistance by 94.60. A break back above the neckline at 94.60 would be significant as this pattern trigger would project additional upside back above 100.00 and towards the 104.00 area. In the interim, we will be looking to target a direct test of the 94.60 neckline at a minimum over the next 24-48 hours. Strategy: BUY@ 92.80 FOR A 94.60 OBJECTIVE, STOP @91.90.
Fundamental Catalyst - The current broad based USD rally has started to even impact this pair with the market trading higher on Tuesday despite the increased risk aversion and concurrent sell-off in the Yen crosses. If the pair is rallying even during times of elevated uncertainty and in the face of falling global equity prices, surely there is good and compelling reason to be long. Additionally, any indication into the US session that the markets are once again willing to take on some risk should also benefit the USD in this pairing. It is also worth noting that technical, quant and flow related data all favor being long at current levels.
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