Morning Report: Markets Await BOJ And ECB

KEY DATA RELEASES TODAY (GMT) :

1000 EUR German ZEW Economic Sentiment exp 40.1 v 34.9
1000 EUR ZEW Economic Sentiment exp 37.6 v 31.8
1500 USD NAHB Housing Market Index exp 58 v 57

OVERNIGHT:

G10 FX price action remains noisy and without a resolution on trading eligibility post the CHF incident, it’s difficult to see liquidity improving any time soon. As such, symptomatic two way moves in 30 pips across the G10 space has become commonplace.

IMF cut its global GDP forecast to 3.5% v 3.8% prior in 2015 and 3.7% from 4.0% prior in 2016. IMF remarked that dimming outlook worldwide underscores need for stronger policy action to boost growth, and that even the positive aspect of lower oil prices is offset by the broad slowdown. Finally, IMF called on the ECB to take aggressive easing measures in this week’s decision

USD/JPY was better bid in Asia. The Nikkei rallied another 1½%, regaining a foothold on 17k. Talk of fresh BOJ policy initiatives tomorrow, including cutting the interest rate on excess reserves (and not including more QQE) helped with fresh moves up in EUR/JPY futures and other derivatives including interest rate swaps seen more than a mere reflection of lower TIBOR and expectations the BOJ will tweak lower its inflation forecasts. Demand into the Tokyo fix helped with USD/JPY grinding up from 117.58 to 117.93. Stops above 118.00 and 118.20 saw a further push to 118.32 as weak shorts were squeezed out. Despite an on-going down bias, EUR/JPY also rallied from 136.45 to 137.12 in thin conditions.

EUR/USD opened in Asia at 1.1605 after getting a lift from short-covering in Europe. Up a bit to 1.1607 early, it eased back thereafter on broad USD strength led by USD/JPY. A low of 1.1572 was seen before talk of bids ahead of 1.1550 discouraged attempts lower. Consolidation looks to be in store ahead of the key ECB decision Thursday. QE is completely priced in though opinions differ as to the extent of the program (E500 bln could disappoint) and how it would be managed (ECB vs national central banks) GBP/USD fell back from 1.5111 to 1.5058 in tandem with EUR/USD on broad USD strength.

Elsewhere, AUD/USD opened in Asia at 0.8212 after moving sideways yesterday in a holiday-thinned trading. Up a tick to 0.8213 early, it fell back on broad USD strength and position squaring ahead of Chinese data. From a low of 0.8169 prior to the data, it rallied to 0.8214 on somewhat better than expected results. The lack of follow-through and an AUD/JPY selling flow sent AUD/USD back through 0.8200 to 0.8160 however as fresh longs were forced to unload. Recent signs AUD/USD could trend higher may have been premature as per the reaction to today’s China data. AUD managed to recover slightly after China posted at 7.4% GDP to beat consensus forecasts of 7.3%, however this still marked the first official miss since 1998 and also the lowest rate of growth in 24 years.

Looking ahead, we get German ZEW during the London session and US NAHB housing market index during the New York session.

OVERNIGHT PRICE ACTION:

EUR: 1.1550 projected trend channel support holds decline, bias remains down below 1.1650
GBP: Below 1.5250 keeps focus on 1.50, break opens 1.54 test
JPY: 118 resistance tested, needs to be reclaimed on closing basis to confirm bullish bias
CAD: 1.20 resistance, pressure remains on the upside above 1.19
AUD: 0.83 trendline test persists, while .83 contains .80 targeted, a break of 83 opens .8450

KEY TRADES:

ANALYSIS:

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

• Projected down trend channel support remains in tact on a closing basis, previous support at 1.1750 now resistance. Price action likely to range ahead of ECB Thursday
• Order Flow indicators; OBV consolidating at lows, Linear Regression and Psychology ticking up to test midpoint from below
• Monitor price action at 1.1750 retest from below to set short positions to target retest of lows

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

• 1.50 first downside objective while resistance 1.54 holds. Shorter term resistance at 1.5250/1.53 continues to cap. Break of 1.5075 support to open downside objectives
• Order Flow indicators; OBV at lows, Linear Regression and Psychology bearish
• Shorts in play, please see key trades

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

• 116 holds to maintain the potential for boarder bullshit consolidation pattern,118 needs to be reclaimed on a closing basis to reduce downside pressure
• Order Flow indicators; OBV ticking back up, Linear Regression and Psychology testing midpoints from below
• Risk free longs in play

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

• Rejected again above 1.20, above 1.19 keep pressure on the upside, strong support at 1.18
• Daily Order Flow indicators; OBV consolidating at highs, Linear Regression and Psychology piercing midpoints from below
• Monitoring price action to reset long positions

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

• Trend channel resistance at 0.83 test continues, bias remains to the downside while this area contains, a break opens .84/85
• Order Flow indicators; OBV ticking up from lows, Linear Regression and Psychology recapture midpoints from below but appear to be stalling
• Monitoring resistance at 0.83 to set short positions initially targeting break of 0.80