Canada inflation data softer than expected. UK retail sales much better. Swissy and Yen losing safe haven appeal. Euro showing inside day price action. Canadian bank on bid in Cable. Looking to buy Usd/Cad.


Fundys - Canada CPI data has come in softer than expected with a -0.3% m/m/+1.1 y/y print after forecasts were calling for -0.2% m/m/+1.2% y/y reading. This should further confirm BoC interest rate policy and the likelihood for additional rate cuts ahead. The most interesting development this week from a price action standpoint has been the notable depreciation in Swissy and Yen, despite the ongoing global macro deterioration and elevated risk aversion. The DJIA has posted fresh trend lows to confirm that we are still in a very bearish market, and the USD continues to benefit from the unstable market environment. However, any flight to safety buying in Swissy or Yen has been compromised of late on the back of an undeniable deterioration within the respective local economies. Data out of Japan this week was miserable, while talk of fears within the Swiss banking system overnight have sent Usd/Chf to new multi-day highs and Eur/Chf impressively higher as well. Again, the market environment and global outlook has not changed and continues to get worse. It now seems as though there is only one currency emerging as the currency of choice, and that is the USD. On the data front, the key release overnight was UK retail sales which came in much better than expected at +0.7% m/m/+3.6% y/y after analysts had been looking for a -0.1% m/m/+2.1% y/y print. In the Eurozone, PMI came in weaker, while French CPI was as expected. Germany's Upper House has finally approved the latest Euro 50B stimulus package. Trichet has been on the wires denying that Ireland is the weakest link in the Eurozone, while also proclaiming his strong opposition to protectionism. Central European currencies continue to take a hit and the latest World Bank forecasts have not helped saying that the CEEU states were subject to high uncertainty. In Austrailia, S&P has downgraded the State of Queensland's ratings from AAA stable to AA+. This has weighed on Aussie, particularly after earlier comments from RBA Battelino who promised there were no concerns about Australia's credit rating. Gold continues to track higher eyeing a move back above $1000 amidst the global turmoil. Looking ahead, key event risk in the North American session comes in the form of US CPI (-0.1% y/y expected) due at 13:30GMT.

Quant -


Techs - EUR/USD showing some bearish inside day price action thus far, with the market unable to build on the previous day's positve momentum. Key levels to watch over the coming session come in by 1.2760 and 1.2515. A break back above 1.2760 will open the door to further corrective action, while back below 1.2515 confirms bearish continuation and exposes 1.2330 (28Oct low) trend lows. USD/JPY price action remains constructive and the pair looks set for a test of the next critical resistance point at 94.60, the 2009 high and neckline of a major double bottom formation. Setbacks should now be propped ahead of 93.30 with only a break back below the latter to delay the recovery structure. GBP/USD continues to consolidate following the latest drop out from the bear channel top at 1.4990 (9Feb high). A break below 1.4095 (18Feb low) will now be required to open the next drop and accelerate declines. The 50-Day SMA by 1.4570 should continue to cap rallies, while 1.4450 is the first level of resistance. USD/CHF has been slowly grinding higher, with the market once again extending gains on Friday just shy of 1.1900 ahead of the latest minor setbacks. Dips are now seen supported by 1.1700 with a break above 1.1900 today to open a move towards psychological barriers at 1.2000, which guard against the 1.2300, 2008 trend highs.

Flows - US investment and prime names on the bid in Usd/Jpy; lots of talk of option unwinds also impacting price action; major stops above 94.60. US investment house on the offer in Cable while Canadian/German banks and Asian sovereign on the bid.

Trade of the Day - USD/CAD: We have seen an ongoing contraction in volatility over the past several months to the point where we have finally reached the apex of a very prominent triangle that has defined trade since late October. Falling triangle resistance comes in by Tuesday's 1.2675 highs and we will be looking for a daily close above the latter to confirm a breakout which will ultimately trigger a fresh upside extension exposing a direct retest of the 1.3020 October 28 trend highs. Ultimately, the upside break should project gains back towards 1.4005 (2004 Highs) over the coming months (measured move objective based off of widest point of triangle). In the interim, the market has now taken out Thursday's high in the overnight session to trade to 1.2630 ahead of the latest minor retreat. We will use 1.2635 (just over today's high) as an entry point for a long trade in anticipation of this triangle break. Strategy: BUY@ 1.2635 FOR A 1.3020 OBJECTIVE, STOP @1.2535.

Fundamental Catalyst - Yesterday's close in the DJIA below the November 20 bear market low now officially confirms that the intense bear market remains in force. A well known economist and Dow Theorist cites in his daily piece that most major bear markets end with stocks at great values or as some Dow Theorists put it, below known values. This has meant in the past that price/earnings ratios for the Dow and the S&P have fallen to single digit numbers. It has also meant that dividend yields have moved into to the 5-6% zone. He goes on……according to the latest Barron's, the P/E ratio for the Dow is now 18.62, 17.90 for the S&P. The dividend rate for the Dow is now 3.98%, for the S&P it is 2.78%. These are hardly the kind of figures I'd expect at a great bear market low.

This paints an extremely gloomy picture going forward and as things have been correlating, should once again translate into a flight to safety in the form of the USD. It would stand to reason that the bearish consolidation in the stock market over the past few months has coincides with the bullish consolidation in Usd/Cad. Therefore if equities are on the verge of another down-leg after yesterday's new low, this could prove to be a useful leading indicator for price direction in the currency pair.




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