Portuguese Bond Auction Produces Whipsaw Trade; USD/CAD Recommedation Inside

There have not been a whole lot of developments on the fundamental front in recent trade and we will take the opportunity to go over broader price action which should hopefully do a good job of bringing you all up to speed. The Euro is now attempting to mount its first recovery rally in 2011, with the market basing out this week and jumping back above 1.3000. The fundamental driver for the recovery can be mostly attributed to all of the latest support from EU and commitments from Japan to help stabilize the region. However, we do not expect to see rallies extend much further before eventually running into some formidable offers as the overriding downside pressures remain intact. The fact of the matter is that the Eurozone is still very much in trouble and needing more time to sort itself out, while the US economy is looking more and more attractive. Market participants are finally starting to see the potential in USD buying not only as a safe-haven, but as an undervalued investment which could prove very rewarding once the Fed starts to reverse monetary policy.

Relative Performance Versus USD Wednesday (As of 11:35GMT)

1. SWISSIE +0.27%
2. CAD +0.24%
3. AUSSIE +0.22%
4. YEN +0.02%
5. STERLING-0.04%
6. EURO-0.06%
7. KIWI-0.43%

For today, market participants have been primarlly focused on the Portuguese auction results. The anticipation of the auction results had generated a lot of intraday voltility in European trade, with the Euro rallying sharply on rumors of a much better result than forecast. However, this proved to be unfortunate, with the results finally coming in quite solid but well below the blowout rumors. This then forced a sharp pullback below 1.3000 from where we have since been seeing some consolidation. The actual result showed Eur1.249B raised (originally high end of estimates; blowout rumor had been over Eur5B). Also getting some secondary atention was an internal EU Commission report proposing a new stability mechanism for sovereigns that could be funded by a bank tax.

Meanwhile, price action in the Pound has been rather boring against the buck, although we have certainly seen some relative strength against all of the other major currencies. As things stand, we do see risks for more Cable upside ahead of the Bank of England rate decision on Thursday, with the market potentially extending up towards 1.5800 before eventually finding renewed offers against the Greenback. As far as the crosses are concerned, we would recommend being less aggressive selling Eur/Gbp following the latest drop, and more focused on buying the Pound against some of the more exposed commodity currencies.

If early 2011 price action is any indication of things to come, it is becoming quite clear that what might have been a rising star in 2010, could now very well be a fading light in 2011. The Australian and New Zealand Dollars have been hit rather hard in the opening days of the new year, with the Australian Dollar standing out as the big loser. Initially, fears of a slowdown in China had begun to weigh on the higher yielding antipodean, but some softer local data and a very serious flood situation have only exacerbated matters and helped to further depress the market. Technical studies have been warning of the possibility for a major trend reversal here, and it looks as though it is finally starting to play out. By virtue of its proximity and correlated economy, the New Zealand Dollar has also been liquidated of late.

Our favorite trade for 2011 is starting to look quite promising early on, with our Eur/Aud buy recommendation already in the money and potentially on the verge of really accelerating. A closer look at the daily chart below shows the early formation of a possible double bottom, with a break back above neckline resistance at 1.3330 to confirm the setup and open a move towards a measured move objective by 1.3700 over the coming days.

Although 2 of the 3 major commodity currencies have been hit hard in recent trade, we can not call it a full on commodity bloc slaughter, with the Canadian Dollar doing a very good job of separating itself from the pack, The Canadian Dollar has actually been one of the stronger currencies of late, with the relative strength coming from a resurgence in demand for US assets which benefit the neighboring Canadian economy, along with a notable divergence in commodity price correlations. Although gold prices are still quite bid, it is oil that has emerged as an outperformer in recent trade, and when breaking down the commodity bloc, it then makes perfect sense to see the oil rich Canadian Dollar benefiting from this fact. At the end of the day, Canada neighbors a recovering US economy and should benefit from this proximity, while Australia (and to a lesser extent New Zealand) are more tied to Chinese economic growth prospects which currently are in question.

Price action in the Aud/Cad cross rate (see below) certainly paints a good picture of what we have been talking about, with the market coming under some intense pressure over the past several days to trigger a major inter-day double top formation that now projects additional weakness down towards the 0.9300 area over the coming sessions. For those worried about playing a short Aussie trade through the US Dollar or Euro, this could very well be another option that eliminates Eurozone debt exposure or further accommodative US monetary policy risks.

Nevertheless, while we certainly favor being long the Canadian Dollar relative to its commodity cousins, we still contend that the relative strength versus the US Dollar is “Loony.” At this point, the justification for this belief is purely technical, as we see longer-term cyclical studies showing Usd/Cad at a major risk for a significant trend reversal over the coming months. As is always the case, we are quite confident that the fundamental catalyst is waiting around the corner and will soon reveal itself.

Finally, we continue to see significant underperformance in the Swiss Franc going forward and it is actually quite fascinating and quite rare to have short Swiss Franc and short Aussie recommendations at the top of our list, with the two currencies traditionally so inversely correlated. We had established a short Swiss position through the Euro on Tuesday and things have paid off quite nicely already with the Eur/Chf cross surging towards key resistance by 1.2730. A break and close back above this level will officially confirm an inverse head & shoulders pattern formation (triple bottom) and accelerate gains to a measured move objective by 1.3000 over the coming days. The ability for global equity markets to stay well bid have certainly helped the trade, but we see the market racing higher no matter what happens in equities from here with technical studies so overwhelmingly stretched and due for a major upside correction. We are long from 1.2550 with an open objective and stop-loss at break-even after booking some quick profits on Tuesday.

Looking ahead to North America, US mortgage applications are out at 12:00GMT, followed by US import prices (1.2% expected) and Canada new house prices (178.0k expected) at 13:30GMT. US IBD/TIPP economic optimism (47.0 expected) is due at 15:00GMT, with oil and gas inventory shortly after at 15:30GMT. Later in the day, the US monthly budget statement (-$80B expected) is due alongside the Fed Beige Book at 19:00GMT. On the official circuit, Treasury Secretary Geithner speaks on the topic of China at 13:30GMT, while Fed Fisher (hawkish) is slated to speak at 18:00GMT on monetary policy. US equity futures and commodities prices are tracking moderately higher ahead of the US open.

TECHNICAL OUTLOOK

EUR/USD:The market remains under some intense pressure, with the latest break below key support by 1.2970 confirming a medium-term lower top by 1.3500 and opening a fresh downside extension towards next key support by 1.2585 over the coming days. Despite the latest drop, daily studies are still not quite oversold and show plenty of room for additional weakness before even considering a material bounce. As such, we expect any intraday rallies to be well capped ahead of 1.3300. Back under 1.2875 accelerates.

USD/JPY: The market appears to be locked in some consolidation with clear directional boas not easily determined. The latest rally has stalled out by the Ichimoku cloud top to suggest that the pressure still remains on the downside for now. Back below 82.00 should accelerate declines and expose the multi-year lows from 2010 just ahead of 80.00, while back above 83.70 will relieve downside pressures and shift structure back to the topside.

GBP/USD: The market remains under pressure and now seems poised for a retest of the platform base from early September at 1.5295. Daily studies are however in neutral territory so we would not rule out the possibility for more of a bounce towards the 1.5800 area over the coming sessions from where a fresh lower top will be sought out ahead of an eventual drop to challenge and break 1.5295. In the interim, we remain sidelined and await a clearer signal.

USD/CHF: Overall price action is certainly concerning for our longer-term basing outlook with the market dropping to fresh record lows by 0.9300 thus far. However, cyclical studies are showing oversold and any additional declines below 0.9300 are not seen as sustainable. The latest bounce back above 0.9600 is certainly encouraging and the rally has also triggered the break of the previous weekly high to set up a bullish reversal week. Look for continued acceleration of gains back above parity over the coming sessions, with any setbacks expected to be well supported above 0.9500 on a close basis.

FLOWS

US Funds have been repeat buyers of Eur/Usd along with a macro account , talk of a large LHS flow through the course of the day in Eur/Gbp, Asian reserve account selling in Cable buy orders from a UK corporate for a reported dividend payment.

TRADE OF THE DAY

USD/CAD:The market has been under some intense pressure and after managing to match the 2010 lows from April on the final day of the year, has now extended declines to fresh multi-month lows into the 0.9800’s. But daily studies are starting to look a little stretched, and this in conjunction with longer-term cyclical studies which warn of a major base, leave us looking for opportunities to buy rather then selling into the downtrend. Look for a weekly close back above 1.0100 to officially relieve downside pressure and open the door for a bullish reversal. In the interim, we see setbacks well supported ahead of 0.9800 on Wednesday and will implement our ATR analysis to isolate an ideal counter-trend entry point. Should the trade trigger, hourly studies will also be well oversold which ultimately should limit any additional downside risk for the day. STRATEGY: BUY @O.9835 FOR AN OPEN OBJECTIVE; STOP 0.9685. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM NY TIME) ON WEDNESDAY.

美元需要风险趋势的延续作支撑

按图放大

美元在2011年的第一周实现开门红，兑瑞郎上涨3.5%，兑欧元上涨3.4%，年前表现相对坚挺的澳元兑美元也下跌了2.1%，主要货币对美元的回落可能意味著新一轮的反转下行，在经历了岁末年初的清淡交易後，一些投机资金流将在市场交投的回升中继续回归，因此目前的问题是，美元在的开门红能否在下周延续。

回顾上周市场，美元基本面表现不一，ISM服务业数据录得4年来的高点，工业生产录得7个月以来的高位，但非农就业报告低于市场预期，就业市场温和复苏，美联储公开市场委员会认为经济复苏仍不够牢固，不足以调整经济刺激计划的规模。而事实上，美元在上周的强劲反弹也获益于其他主要经济体各自的困境。欧元区市场信心指数表现恶化，中国官方称将采取进一步的措施对经济进行降温，澳大利亚昆士兰洪水使澳元连续多天承压，此外，非美货币去年年末在清单的市况中大幅反弹也使美元有反弹修正的必要。

展望接下来的一周，主要非美货币基本面的疲弱可能使美元继续受到支持，但美国国内的经济基本面无疑是指导美元走势的重要的因素，经济增长速度、货币供应和美联储的政策可能在一定程度上影响美元走势，而市场情绪的变化可能仍是影响美元波动的最重要影响，标普500指数面临修正压力可能表现市场乐观情绪将出现变化，美元不排除从中获得支持的可能。

British Pound Rally To Accelerate, New Zealand Dollar To Hold Narrow Range

Daily Winners and Losers

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
GBPUSD	1.5714	1.5720	1.5583	115	137

The British Pound extended the advance from earlier this week to reach a fresh monthly high of 1.5718, and the exchange rate may continue to push higher over the next 24 hours of trading as the Bank of England is widely expected to maintain their current policy in January. The GBP/USD remains 115 pips higher on the day after moving 98% of its average true range, and the pair may continue to retrace the decline from the previous month as investors scale back speculation for additional monetary easing. However, if we see the relative strength index hold below 70 throughout the North American trade, a corrective retracement could unfold going into the Asian session as price action continues to hold below the 50-Day moving average at 1.5719. Nevertheless, as the GBP/USD clears the 38.2% Fibonacci retracement from the 2009 low to high around 1.5680-1.5700, the BoE interest rate decision could certainly serve as a catalyst to spark another short-term rally in the exchange rate, and the recent appreciation in the British Pound may accelerate over the coming days as the central bank drops its dovish outlook for future policy.

Se Acelera el Incremento en la Libra Esterlina, el Dolar Neozelandes Mantuvo su Estrecho Rango

La Libra Esterlina extendió su avance de esta semana para alcanzar un nuevo máximo mensual de 1.5718, y la tasa de intercambio sigue presionando al alza durante las próximas 24 horas de operación mientras que se espera que el Banco de Inglaterra mantenga su actual política en Enero.

Ganadores y Perdedores Diarios

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
GBPUSD	1.5714	1.5720	1.5583	115	137

La Libra Esterlina extendió su avance de esta semana para alcanzar un nuevo máximo mensual de 1.5718, y la tasa de intercambio sigue presionando al alza durante las próximas 24 horas de operación mientras que se espera que el Banco de Inglaterra mantenga su actual política en Enero. La cotización GBP/USD sigue 115 pips al alza en el día luego de mover el 98% de su rango de promedio real, y el par puede continuar retrasando la disminución del mes anterior mientras los inversionistas retroceden la especulación de nuevas facilidades monetarias. Sin embargo, si vemos el índice de fuerza relativa manteniéndose por debajo de 70 a través de las operaciones Norte Americanas, un retroceso correctivo podría desenrollarse dentro de la sesión asiática mientras que el comportamiento de precio se sostiene por debajo de los 50- días de promedio móvil en 1.5719. No obstante, mientras que el par GBP/USD aclara el 38.2% de retroceso Fibonacci a partir del mínimo hasta el máximo de 2009 alrededor de 1.5680-1.5700, la decisión sobre la tasa de interés del BoE ciertamente podría servir como un catalizador para propagar otro incremento en el corto plazo en la tasa de intercambio, y la reciente apreciación en la Libra Esterlina puede acelerarse en los siguientes días mientras que el banco central reduce su pronóstico pesimista con respecto a la política futura

British Pound Rally To Accelerate, New Zealand Dollar To Hold Narrow Range

Daily Winners and Losers

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
GBPUSD	1.5714	1.5720	1.5583	115	137

The British Pound extended the advance from earlier this week to reach a fresh monthly high of 1.5718, and the exchange rate may continue to push higher over the next 24 hours of trading as the Bank of England is widely expected to maintain their current policy in January. The GBP/USD remains 115 pips higher on the day after moving 98% of its average true range, and the pair may continue to retrace the decline from the previous month as investors scale back speculation for additional monetary easing. However, if we see the relative strength index hold below 70 throughout the North American trade, a corrective retracement could unfold going into the Asian session as price action continues to hold below the 50-Day moving average at 1.5719. Nevertheless, as the GBP/USD clears the 38.2% Fibonacci retracement from the 2009 low to high around 1.5680-1.5700, the BoE interest rate decision could certainly serve as a catalyst to spark another short-term rally in the exchange rate, and the recent appreciation in the British Pound may accelerate over the coming days as the central bank drops its dovish outlook for future policy.