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MIDDAY UPDATE
12:42 p.m. GMT

Trading has been somewhat lackluster on Thursday as the Chinese economic data failed to generate any big momentum swings.

The AUD weakened after Chinese CPI rose at a higher-than-expected pace. The inflation virtually assures that Chinese policymakers will act to cool the economy, likely with interest rate hikes. The efforts to cool the economy will spill over to Australia. Despite this and a soft employment report, the AUD has managed to recover all its losses, suggesting strong buying interest and bullish sentiment.

The top-performing currency is the GBP, which made broad gains after the Bank of England’s quarterly inflation attitudes survey showed inflation expectations over the next 12 months at 2.5% compared to 2.4% in November. Current inflation is seen at 3.4% compared to 3.2% previously. The Bank of England has been steadfast is comments suggesting that inflation will fall. In a speech on Monday, central banker Kate Barker said inflation could be below target in two years’ time. Still, market participants are paring back expectations about further quantitative easing measures after the report.

Despite the data, we see the rally in GBP as more of a short-squeeze related to position covering. The market is heavily short GBP and a bounce was foreseeable. Technically, cable appears to be trying to carve out a bottom as yesterday’s low and today’s reversal show a higher low than the March 1 drop to 1.4781.

The worst-performing G10 currency is the New Zealand dollar. This comes after the NBNZ decision just prior to the start of the trading day. Policymakers implied fewer rate hikes to come and the market now expects them to stay on hold for at least 6 months. Technically, a bearish gravestone doji pattern has appeared on the daily NZD/USD chart but we will need to see a close below the 200-day moving average at 0.6976 to confirm the sell signal. It would target at least 0.6849.
 

DAILY MARKET MORNING REVIEW

March 11, 2010
2:00 am GMT

CURRENCIES

EUR/USD: On Wednesday, the euro traded in a range of 1.3545 to 1.3680, and has traded in a range of 1.3629 to 1.3660 so far today. Short term support lies at 1.3531, 1.3436 and 1.3424, with resistance at 1.3736 and 1.3788.

GBP/USD: On Wednesday, cable traded in a range of 1.4873 to 1.5017, and has traded in a range of 1.4957 to 1.4988 today. Short term resistance lies at 1.5317, and 1.5575 with support at 1.4787, and 1.4784.

EUR/GBP: On Wednesday, the EUR/GBP traded in a range of 0.90605 to 0.9134, and has traded in a range of 0.91079 to 0.91215 today. Short term resistance lies at 0.91488 and 0.91497, with support at 0.89218, 0.88682, and 0.87507.

USD/JPY: On Wednesday, the USD/JPY traded in a range of 89.85 to 90.82, and has traded in a range of 90.39 to 90.55 today. Short term resistance lies at 91.29 and 92.15 with support at 88.94, 88.14, 87.37 and then 84.83.

AUD/USD: On Wednesday, the AUD/USD traded in a range of 0.9127 to 0.9193, and has traded in a range of 0.9121 to 0.9157 today. Short term resistance lies at 0.9243, and 0.9328, with support at 0.8979, 0.888 and then 0.8801.

NZD/USD: On Wednesday, the NZD/USD traded in a range of 0.7010 to 0.7098 and has traded in a range of 0.6983 to 0.7025 today. Short term resistance lies at 0.7098, 0.7151, and 0.7170 with support at 0.6889, 0.6848 and then 0.6818.

USD/CAD: On Wednesday, the USD/CAD traded in a range of 1.0217 to 1.0292, and has traded in a range of 1.0244 to 1.0262 today. Short term resistance lies at 1.0340, 1.0574, and 1.0680 with support at 1.0207, 1.0128, and 1.0071.

EUR/CHF: On Wednesday, the EUR/CHF traded in a range of 1.4611 to 1.4630, and has traded in a range of 1.4606 to 1.4616 so far today. Short term resistance lies at 1.4630, 1.4636, and 1.4639, with support at 1.4591, 1.4579, and 1.4544.

COMMODITIES

Gold: On Wednesday, gold traded in a range of $1103.70 to $1128.08. After markets opened in Asia on Thursday, the commodity has traded in a range of $1107.20 to $1111.75. There is short term support at $1088.50, and $1078.06, with resistance at $1141.65, $1144.98 and then $1146.45.

Silver: On Wednesday, silver traded in a $16.935 to $17.6525 range, and is currently trading in a $16.935 to $17.07 range. Support lies at $16.86, $16.3025, and $15.5975 with resistance at $18.045 and then $18.860.

Crude: On Wednesday, NYMEX crude oil futures traded in a range of $80.81 to $83.03, and has traded in a range of $81.72 to $81.98 on Thursday so far. Short-term support lies at $79.47, $78.48, and $77.05, with resistance at, $83.95, and $84.83.

HEADLINE

Thursday is going to be a busy day for traders starting with the Swiss National Bank’s interest rate decision, followed by the U.S. and Canadian trade balances alongside U.S. jobless claims, a speech from Bank of Canada Governor Mark Carney, and New Zealand retail sales later in the day.

On the back of a quiet session for Europe on Thursday, focus is likely to lie on the Swiss National Bank’s interest rate decision at 8 a.m. EST. Economists unanimously expect the central bank to maintain its benchmark 0.25% interest rate, leaving focus on the accompanying statement released at 9 a.m. EST.

At the most recent statement on September 17, the central bank stated that it “is still aiming to keep the Libor within the lower end of this range, i.e. at approximately 0.25%. It will continue to provide the economy with a generous supply of liquidity and, if necessary, to purchase Swiss franc bonds with a view to reducing risk premia on long-term debt instruments issued by private sector borrowers. In addition, it will continue to act decisively to prevent any appreciation of the Swiss franc against the euro.”

Any changes to these statements will impact the Franc, particularly if the SNB seems inclined to hike rates in the near future.

The North American session is looking busy on Thursday with market simultaneously receiving the U.S. and Canadian trade balances, along with U.S. jobless claims.

The day begins at 8:30 a.m. EST, with the U.S. trade deficit expected to widen to $41.0 billion in January from $40.2 billion the month prior.

Also, initial jobless claims for the week ending March 6 are expected to decline to 460k from 469k the week prior. Continuing claims for the week ending Feb. 27 are expected to remain unchanged at 4500k.

With the employment situation in the United States the most sensitive issue these days, expect a better than expected jobless claims report to be met with USD-buying and vice versa. Meanwhile, a smaller than expected widening in the trade balance or outright contraction could also make for a stronger greenback.

North of the border, the Canadian international merchandise trade balance is expected to go into surplus at C$0.2 billion compared to the C$0.2 billion deficit the month prior.

As with the U.S., a stronger trade balance is a Canadian dollar-positive.

Then at 1:30 p.m. EST, Bank of Canada Governor Mark Carney will address students at Carleton University in Ottawa.

Key comments should revolve around whether or not the central bank continues to see the strong Canadian dollar as a treat to the country’s economic recovery. If Carney singles out the loonie, it should cause a deterioration in its value. On the other hand, if he blows off currency concerns, expect it to rally further.

Much later, at 4:45 p.m. EST, New Zealand will publish its January retail sales report, which is expected to rise 0.5% month-over-month following a flat reading in December. Sales excluding autos are expected to increase by 0.7% compared to the prior 1.8% contraction.

Market reaction should be textbook, with the Kiwi dollar rallying on the back of better than expected results.

INTEREST RATES

 

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Have a great trading day!