Australia cuts by 100bps as expected to 3.25%. Australia Treasurer announces stimulus package. Bank of Japan to buy shares held by Japanese banks. UK construction PMI better than expected. Eurozone PPI slightly softer.
Fundys - A relatively quiet overnight session of trade with all major currencies trading at or near daily opening levels. The initial event risk came in the form of the as expected RBA decision to cut interest rates by 100bps to 3.25%. This helped to generate some fresh bids by the lows with gains seen accelerating on the news of a large stimulus package from Australia Treasurer Swan. USD/JPY was well supported overnight after the news hit the wires the BoJ would be buying shares held by Japanese banks. In the European markets, UK data once again exceeded expectations with the January construction PMI coming in at 34.5 versus a 29.0 forecast. Eurozone PPI was slightly lower than expected at -1.3% after analysts had been looking for a -1.2% print. Elsewhere, the IMF once again was on the wires saying that the Yuan was undervalued. The FTSE and DAX are lower today down some 0.6% and 0.9% respectively, while commodities have been mixed with oil up some 1.0% while gold is marginally lower. Looking ahead, a quiet calendar for the North American session with US pending home sales at 15:00GMT followed by consumer confidence at 22:00GMT. Many are now expecting price action to remained confined to familiar ranges into the latter part of the week when event risk picks back up with the BoE and ECB rate decisions.
Techs - EUR/USD trading with heavy tone following recent break back below 1.2765 and looks set for an eventual retest on the 1.2335 critical multi-year lows. Next supports come in by 1.2550-1.2670 (4Dec low/lower bollinger) while key levels to watch above come in by 1.2960-1.3000 (Friday high/psychological). USD/JPY remains locked in some bearish sideways consolidation with the latest setbacks seriously damaging prospects for major base and double bottom. The market seems intent on taking out the key matched trend lows by 87.15. Key levels to watch over the coming session come in by 90.10 and 88.40. GBP/USD gains have stalled out and the pair is in the process of putting in a key bearish reversal day after just taking out Friday's low. A break back below 1.4070 will confirm bearish resumption while only back above 1.4545 brings upside back into play. USD/CHF price action remains constructive with the market confined to a well defined bull channel. While the market trades back to daily opening levels, a fresh higher high on Monday keeps the structure intact. Key levels to watch above and below come in by 1.1715 and 1.1515 respectively.
Flows - Solid bids reported in Cable by 1.4150 with decent stops below 1.4140; UK Clearer and CTAs on the offer ahead of 1.4300. Local French bank demand for USD/CAD . Talk of a large 1.2700/1.3700 EUR/USD Double-No-Touch which matures a week from Friday. Talk of broad based USD offers against the Euro and GBP from large US buy-side shop. London fix related demand for EUR/JPY .
Trade of the Day - EUR/USD : Despite the setbacks seen thus far today, the pair has been well supported in the 1.2700's over the past several days and could be once again looking to base out by Monday's low at 1.2705. A bullish hammer-like close on Monday is encouraging and we would expect to see some positive follow through into the US session with gains accelerating on a break back above 1.2915 (today's high). All relevant moving averages currently reside above the market and this would suggest that the pair is somewhat overextended and likely to revert back to its mean. Nevertheless, the overriding structure remains grossly bearish and we will only look to establish fresh longs on a break back above 1.2915. Strategy: BUY @ 1.2920 FOR A 1.3330 OBJECTIVE, STOP @1.2690.