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Another exciting session of trade in Europe with the Euro selling off like wildfire early on following ECB Stark comments that the EU would not save Greece. Stops below 1.4300 in Eur/Usd were tripped, with the pair trading down to 1.4285 before finally finding some solid support.

MORNING SLICES

FUNDYS

Another exciting session of trade in Europe with the Euro selling off like wildfire early on following ECB Stark comments that the EU would not save Greece. Stops below 1.4300 in Eur/Usd were tripped, with the pair trading down to 1.4285 before finally finding some solid support. The move appeared to be more than an overreaction with some swift buying reversing market direction and taking the pair back to fresh session highs towards 1.4400. Comments from the Greek FinMin that all would be fine also helped to reinfuse appetite for the Euro.

Relative Performance Versus USD on Wednesday (As of 10:45GMT) –

1) AUSSIE +0.20%
2) CAD +0.13%
3) SWISSIE +0.06%
4) STERLING +0.03%
5) EURO -0.01%
6) KIWI -0.22%
7) YEN -0.80%

Although the Pound had been bid on the day, there were many looking to sell the single currency after Pimco came out for the second time in two days to warn of the high risk of Britain losing its coveted triple A rating. Also on the ratings front, Fitch was seen demoting Iceland’s ratings which did not help to bolster investor risk appetite. More broad comments on the USD on Wedensday with the UAE coming out and reaffirming that it would maintain its peg to the Greenback. The PBOC was out with monetary policy report and there were no shockers after the Chinese central bank said that it would maintain an appropriately loose monetary policy to support the ongoing recovery.

On the data front, releases were on the whole disappointing with German and Eurozone services PMI coming in weaker, while Eurozone PPI was softer and Eurozone industrial new orders were well below expectation. UK services PMI was also released and managed to be the standout after coming in right on consensus.

Looking ahead, mortgage applications are due at 12:00GMT, followed by Challenger job cuts at 12:30GMT and ADP employment (-75k expected) at 13:15GMT. ISM non-manufacturing (50.5 expected) caps things off at 15:00GMT. US equity futures point to a softer open, while oil is flat and gold is slightly bid.

TECHS

EUR/USD: While longer-term and medium-term technicals now warn of a major shift in the structure, which favors additional USD gains, shorter-term technicals are stretched, with the daily RSI in the process of recovering from below 30. Remarkably, the daily RSI in the major had not been below 30 since October of 2008. While this development reaffirms the trend shift into the USDs favor, the shorter-term horizon now warns that we could see more of a bounce over the coming days to allow for some inter-day oversold technical readings to unwind. The risks from here are potentially for a bounce back towards the 1.4625 area before considering a fresh downside extension below the 200-Day SMA.

USD/JPY: Despite the latest bounce, the pair still remains confined to a very strong downtrend and any rallies are seen limited, in favor of a bearish resumption. Look for a lower top to now carve out by 93.20 ahead of the next drop back below key short-term support by 91.00 over the coming sessions. It is however worth noting that the market has broken back above the daily Ichimoku to potentially warn of a shift in the structure. But moves above the Ichimoku in recent attempts have proved fleeting. A break back above 93.20 will now be required to force a shift in our bias.

GBP/USD: The market has now easily cleared support by the 200-Day SMA and psychological barriers by 1.6000 to open the next downside extension towards key medium-term support at 1.5700. Daily studies are however in the process of unwinding from oversold levels, and we would recommend looking to sell into rallies rather than selling on breaks. Look for any rallies to now be well capped ahead of 1.6300, where a lower top is sought out ahead of the retest on 1.5700.

USD/CHF: The break back above 1.0340 in recent weeks has been a critical development which now greatly increases the likelihood of a material shift in the structure in favor of additional medium-term USD gains. The market has also now broken back above the 100-Day SMA for the first time since May 2009, while the daily RSI has recently reached its highest levels in over a year, which further strengthens our core bullish outlook. From here, look for any setbacks to now be very well supported ahead of 1.0200, with the market now seen eyeing a test of next resistance by 1.0700 over the coming days.

FLOWS

Local accounts on the offer in Usd/Cad. French bank and US prime name demand for Eur/Gbp. Central bank and semi-official bids in Eur/Usd.

TRADE OF THE DAY

Eur/Aud: The market has been very well supported over the past decade on dips into the 1.5500 area, and given the pace of the latest declines, we like the idea of once again looking to buy into the current dip below 1.6000. Daily and weekly studies are looking quite stretched with the daily RSI already dipping below 30, and any additional declines on Wednesday into the mid-1.5600’s are sure to result in some very exhausted and overextended hourly studies. This should set up a highly compelling short-term entry for what could ultimately develop into a formidable longer-term trade. STRATEGY: BUY @1.5650 FOR AN OPEN OBJECTIVE; STOP 1.5450. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON WEDNESDAY. 3X LEVERAGED.

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