Fundys - The improved market sentiment and increased risk appetite have carried over into the early week with global equities once again higher across the board and the greenback selling off as investors flow back into the higher yielding currencies. There have not been a lot of developments overnight with the main driver of price action being attributed to positive developments out from the weekend G20 meeting in which the group vowed to rid banks of toxic assets and restore growth. There has however been an acceleration USD selling this morning following the latest as expected Eurozone inflation data, with the core reading slightly higher. Sterling has been an outperformer on the day up over 1.50% against the USD, and second only to the Swedish krona which is up some 2.40% against the buck. More evidence of a the BoE quantitative easing measures being well received, along with successive positive monthly UK Rightmove HPI, and news from Barclays of a strong start to 2009 have all helped to give the UK currency an added boost on the day. In Japan, the latest government report sees the assessment on the economy unchanged for the first time in 6 months. While this is hardly anything to get excited about, the fact that there has not been another downgrade leaves some room for cautious optimism. On the commodity front, oil trades materially lower on Monday, after OPEC decided to leave output unchanged. There has been some speculation in the previous week that the organization would cut production. However, OPEC has still not abandoned its $70 price target. Looking ahead to the North American session of trade, US empire manufacturing (-32.00 expected) and Canada capacity utilization are due at 12:30GMT, followed by TICS data ($45.0B expected) at 13:00GMT and industrial production (-1.3% expected) and capacity utilization (71.0% expected) at 13:15GMT. NAHB housing data (9 expected) comes out later in the day at 17:00GMT. On the official circuit, ECB President Trichet is scheduled to speak at 16:30GMT.
Techs - EUR/USD (See below). USD/JPY trades back into the more defined range of the past several days after a false break last Thursday and sharp upside reversal. For now, a break above 99.70 or back below 97.15 will be required for clearer directional bias. GBP/USD remains constructive with some material gains into Monday. The recent rally not puts the critical 50-Day SMA back into focus with any rallies towards the 1.4350 area to be used as formidable sell entries. Key levels to watch over the coming session comes in by 1.4305 and 1.4050. USD/CHF remains confined to the recent choppy range, despite the latest break to fresh 2009 highs at 1.1970 last Thursday. Look for the market to trade lower and back into the range on Monday. Key levels to watch above and below come in at 1.1915 and 1.1750.
Flows - Russian account and UK corporate bidding Cable. System fund and intraday spec offers in Eur/Usd have been easily absorbed by bids from Asian sovereigns; Asian central bank selling above 1.3000. Specs on the bid in Usd/Jpy; commercial accounts on the offer; option expirires cited at 97.90, 98.40 and 99.55.
Trade of the Day - Eur/Usd: Continues to extend gains into the early week with the market now threatening a sustained break back above the 1.3000 psychological barriers. Next key topside resistance comes in the form of the 100-Day SMA at 1.3055, followed by the 1.3095 inter-day high from February 9. Nevertheless, the overall trend still remains grossly bearish, and we will look for an opportunity to sell back into the broder down-trend, with gains seen limited to the 1.3095 area on Monday. Strategy: SELL @1.3100 FOR A 1.2730 OBJECTIVE, STOP @1.3220. Stops to be trailed to cost on a break back below 1.3040. If trade triggers and 1.3040 not broken, position to be closed out at NY close (5pm EST) on Monday. Recommendation to be removed if not triggered by NY close on Monday.
Fundamental Catalyst - Some optimistic comments out from G20 this weekend have helped to bolster risk appetite into Monday, with the global equity markets continuing where they left off in the previous week and rallying impressively yet again. Vows from the G20 to quickly clean up bank’s toxic assets and to restore growth have been a significant driver, while news that Barclays has made a strong start to 2009 has also helped to prop investor sentiment. However, we would once again caution traders in getting overly optimistic at this point, as the common pattern throughout the global economic crisis has been one that often results in the onset of more unexpected bad news, to quickly remind that we are far from out of the woods. Additionally, data out of the Eurozone of late has been coming in on the weaker side, and the European Central Bank has had to come to terms, perhaps too late, with having to adopt a more accommodative monetary policy. We expect this to continue to weigh on the Euro, with interest rate differentials to narrow even more in favor of other currencies including the USD.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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