All that time hovering just above support, and gravity has finally had its way (funny how often that happens). And it can’t even be blamed on EUR/USD, which was broadly flat yesterday. Sterling (read GBP/USD in this specific instance) underperformed plain and simple. One can only conclude that longs were disappointed by the BOE minutes. Not quite sure what they were expecting, these things take time! I’m not yet ready to concede the end of the GBP/USD bull trend though. My main reason is the monthly close above resistance last month. There’s no rule that says you can’t pull back from a break before the trend continues, and the fundamentals – GDP out-performance relative to developed economy peers, central bank mulling an exit strategy from ZIRP etc – do support sterling strength. However if we do close back below former resistance then it’s fair to ask.. was it just a false break? For now cable’s recent moves have more of the feel of over optimistic (weak?) longs retreating. Let’s see what impact the retail sales numbers have on sterling later on this morning.


We have seen some bullish breaks in risky FX though. USD/ZAR is the poster child of that. Emerging market currencies were strong yesterday moving in step with US equity markets, which again posted intra-day highs. It only makes EUR/USD’s performance stand out all the more, and European FX along with it. This morning, not surprisingly sees the market pulling back a bit from its exuberance of yesterday, as short term players take profits.


On the data front, Japanese trade numbers are considerably worse than expected, with an annual export decline of 2% versus consensus expectations of a 1% rise. This follows on from a decline 2.7% previously. 2 obvious things to take from that: Japanese export markets are weaker than expected – obvious implications for global macro there; and the resulting larger than expected trade deficit doesn’t harm the argument for a softer yen going forward. One other observation – and I’m sure more can be gleaned from the break down which I haven’t had a chance to look at yet – is the (as expected) strong import numbers are a plus for Mr Abe in his attempts to get the Japanese domestic economy going again. USD/JPY hasn’t done too much in recent days. From an Elliot wave practitioners perspective (and this is only after a quick glance at the intra-day chart), we may be in a corrective wave (ii) of 3, with an impulsive move higher to come. No doubt some short term traders will have stops just below 101.20 to see if this pattern plays out, so for me.. that’s the level to watch today. As I write the currency pair trades at 101.44, so a decent looking risk reward trade.


We have jobless claims and home sales to come later on today in the U.S. Consumer confidence in Mr Draghi’s homeland might be something to keep an eye out for as well this morning. For now EUR/USD and other euro crosses continue to look like the sick dogs. A fairly important support level, representing the year to date lows, in EUR/USD has gone now. I’m not sure what’s going on in vol space, but I wouldn’t be surprised if there are knockout barriers that could be vulnerable below in EUR/USD. It’s going to be very interesting to see how this plays out.

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