Morning Report: Calm Before the NFP Storm

KEY DATA RELEASES TODAY:

0930GMT GBP Manufacturing Production m/m exp 0.4% v -0.7%
0930GMT GBP Trade Balance exp -9.5B v-9.6B
1330GMT USD Average Hourly Earnings m/m exp 0.2% v 0.4%
1330GMT USD Unemployment Rate exp 5.7% v 5.8%
1330GMT USD Non-Farm Employment Change exp 241K v 321K

OVERNIGHT:

USDJPY was bid early in Asia with decent importer-side demand at today’s Tokyo fix as is usually the case on Fridays. USDJPY saw a grind up from a New York low of 119.38 and 119.63 early to 119.88 before falling back. Bids around large option expirations at 119.50 ($2.364 bln) held for a time before another leg down to 119.16 as weak, retail longs pared positions ahead of the US non-farm payrolls data today. This bloc originally had decent-sized offers just ahead of 120.00 alongside option players. Some $1.541 bln in 120.00 vanilla expiries are eyed today as well. EURJPY traded in sync with USDJPY, off from highs of 141.36 and to 140.77.

EURUSD was softly bid in Asia on paring of shorts ahead of today’s US non-farm payrolls data but the complex itself was mostly quiet. EURUSD rose from 1.1786 early to 1.1815, making small tracks away from a retracement low of 1.1780 late in New York. It had earlier rallied from a fresh trend low of 1.1754 to 1.1819. Large option expiries bracket EURUSD 561 mln at 1.1750, 1.474 bln up at 1.1900.

GBPUSD traded slightly better bid between 1.5078-1.5104 into the US NFP data today.

Elsewhere, short covering in AUD kept the dollar under pressure as the recent bearish sentiment looks to be receding. The slight miss on AUD retail sales, which printed an underwhelming 0.1%, failed to halt the rally to the 0.8147 highs.On the data front, China inflation was mixed, as December CPI matched expectations of 1.5% and also marked the first y/y sequential increase in 7-months, having hit a 5-year low of 1.4% in November. For the year, 2014 CPI came in at 2.0%, unchanged from YTD level in Nov and also well below 3.5% official target. Wholesale inflation – PPI – was in the red for the 34th consecutive month and also deteriorated to -1.9% for 2014 from -1.8% YTD in November.

Looking ahead, we get IP data out of UK, Germany & France but the highlight will of course be NFP’s

OVERNIGHT PRICE ACTION:

EUR: 1.17 next key support, resistance at 1.19
GBP: Descending trendline support holds for now
JPY: Holds trend line support for trend continuation 2014 highs targeted
CAD: Pin bar rejection of ascending trendline resistance, but bullish consolidation persists
AUD: Psychological 0.80 level targeted, while below 0.82

KEY TRADES:

FX PairShort TermPosition/DateEntry LevelTargetStopComments
EURUSDBearishAwait new signal
GBPUSDBearishAwait new signal
USDJPYBullish BUY/06 JAN 119.50 OPEN118.00
USDCADBullishSELL/08 JAN 1.18 OPEN 1.19Counter Trend
AUDUSDBearishAwait new signal

ANALYSIS:

EURUSD Short Term (1-3 Days): Bearish  – Medium Term (1-3 Weeks) Bearish 

  • 1.18 broken the Euro now looks towards 1.17 as support with resistance at 1.18
  • Order Flow indicators; OBV at new lows, Linear Regression ticking up from lows and Psychology bearish
  • Watching price action for short entries at retest of 1.19 from below

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GBPUSD: Short Term (1-3 Days): Bearish  – Medium Term (1-3 Weeks) Bearish

  • Descending trendline support remains in tact for now 1.50 first downside objective while resistance 1.5150 holds
  • Order Flow indicators; OBV ticking up from lows, Linear Regression and Psychology bearish but ticking up from recent lows
  • Risk free shorts in play

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USDJPY: Short Term (1-3 Days): Bullish  – Medium Term (1-3 Weeks) Bullish

  • Trend line support holds and sets platform to retest 2014 highs
  • Order Flow indicators; OBV new highs, Linear Regression bearish and Psychology rotating at midpoint
  • Longs in play, please see key trades for details

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USDCAD: Short Term (1-3 Days):Bullish  – Medium Term (1-3 Weeks) Bullish

  • Pin bar rejection of topside projected trend channel resistance but bullish consolidation continues
  • Daily Order Flow indicators; OBV consolidating at highs, Linear Regression pulling back to test midpoint from above and Psychology pierces midpoint from below
  • Tactical short trade in play. please see key trades

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AUDUSD: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks) Bearish

  • Psychological 0.80 remains downside objective while resistance at 0.82 remains intact
  • Order Flow indicators; OBV consolidating at depressed levels, yet to confirm new lows in price, Linear Regression ticking up pierces midpoint from below and Psychology rotates at midpoint
  • Monitoring resistance at 0.82 to set short positions targeting break of 0.80

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