Morning Report: Mario Drags Euro Lower

KEY DATA RELEASES TODAY (GMT) :

0900 EUR Flash Services PMI exp 52.1 v 51.9
0900 EUR Flash Manufacturing PMI exp 51.0 v 50.8
1445 USD Flash Manufacturing PMI exp 54.1 v 53.7
1500 USD Existing Home Sales exp 5.08M v 4.93M

OVERNIGHT:

The morning after the day before and EUR has continued to weaken overnight while equity markets are embracing this new stream of liquidity from the ECB. The Dow Jones ended up 259.7 pts, or 1.48%, S&P 500 closed up 31.03 pts or 1.53% at 2063.15 while in Asia the Nikkei is up over 180 pts. G10 FX, the dollar remains on the offensive across the board with the DXY re-testing yesterday’s high of 94.50. On the data front, Japan PMI manufacturing rose slightly to 52.1 in January. Also of note, BBC is citing BOJ Gov Kuroda suggesting that reaching 2% inflation target would be delayed to the end of FY15/16, which is in line with the latest projections of FY15/16 Real CPI 1.0% (down from 1.7%) and FY16/17 Real CPI of 2.2%.

USD/JPY and the JPY crosses fell back with many booking profits ahead of the weekend. It was an event/ news-filled week and more will be seen Sunday with the Greek election. News of Saudi King Abdullah’s death caused crude oil to spike and affected some of the petro-commodity crowd and keeping volatility high. USD/JPY led the complex down despite good demand at today’s Tokyo fix. From 118.82 into the fix, Japanese exporters whacked it, quickening specs moves out. Option-related offers remained in place ahead of expiring 119.00 (625 mln) and 119.50 (1.007 bln) strikes. A low of 118.24 was seen before the market steadied. Option expiries helped limit the downside too with 118.25 (864 mln) and 118.00 (2.575 bln) strikes also going off. EUR/JPY saw short-covering to 135.05 before falling back to 134.41. 134.28 was the low last night and 134.15 the spike low October 16. Stops are eyed sub-134.15 and 134.00, the latter on optionality.

EUR/USD opened in Asia at 1.1360 after an ECB QE announcement which exceeded expectations. Consolidating mostly after the plunge overnight, EUR/USD eked out a 1.1338-76 range. Sentiment remains extremely bearish and fundamentals should continue to provide fresh reasons to sell. Key tech support is eyed at 1.1212, 61.8% Fib retracement of the 0.8228 -1.6040 move. Offers reported ahead of 1.1450. With regard to the Greek election Sunday, the anti-austerity Syriza Party appears headed for victory. GBP/USD rallied from a fresh trend low of 1.4973 to 1.5027 before falling back.

Elsewhere, CAD remains even weaker after the surprised rate cut by BoC on Wednesday, while the global easing campaign raised bets on the RBA cutting in Feb with markets pricing in 50% chance of a cut, up from 25% last week, AUD/USD extended its losses below 0.80 to test a 5-year low.

Looking ahead, the focus this morning will be on the Eurozone PMI’s & UK retail sales while the afternoon session brings US existing home sales & leading indicators. The focus will then turn to the Greek elections on Sunday, where Syriza will attempt to prevent a last-minute comeback from the ruling ND party before potentially searching for a governing partner

OVERNIGHT PRICE ACTION:

EUR: Bias remains down below 1.1450 targeting 1.1212
GBP: Below 1.51 keeps focus on next support zone at 1.48
JPY: 119 resistance, while 117 supports expect a 120 test
CAD: 1.25 next resistance, 1.2050 support for next leg higher
AUD: 0.80 support broken, technical support is eyed at 0.7945

KEY TRADES:

ANALYSIS:

EUR/USD Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks) Bearish

• Key technical support at 1.1212, 61.8% fib retracement of the 0.8228 -1.6040 move. Former spike low support 1.1450 now resistance
• Order Flow indicators; OBV at lows, not yet confirming new lows in price, Linear Regression and Psychology stalling ahead of midpoint
• Monitor price action at 1.1450/1.1550 retest from below to set short positions to target 1.1212

GBP/USD: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks) Bearish

• 1.50 first downside objective achieved, 1.5050 support zone should know act as resistance to target projected downside trend channel at 1.48
• Order Flow indicators; OBV at lows, Linear Regression and Psychology bearish
• Risk free shorts in play

USD/JPY: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks) Bullish

• 117 supports for retest of 119 on way back to 120. Failure at 117 opens retest/break of key medium term bullish support at 116
• Order Flow indicators; OBV consolidating below recent highs, Linear Regression pierces midpoint, Psychology stalling at midpoint
• Risk free longs in play, please see key trades for details

USD/CAD: Short Term (1-3 Days): Bullish - Medium Term (1-3 Weeks) Bullish

• 1.25 next resistance, 120.50 support
• Daily Order Flow indicators; OBV pulling back from fresh highs, Linear Regression bullsih and Psychology pulling back to test midpoint from above
• Monitoring price action to reset long positions around 1.2050

AUD/USD: Short Term (1-3 Days): Bearish - Medium Term (1-3 Weeks) Bearish

• 0.80 support broken, former support at .81 to act as resistance
• Order Flow indicators; OBV at lows, Linear Regression and Psychology bearish
• Monitoring price action for beneficial risk reward set up to enter short positions