Market Rumours

Sterling drops to the day's lows after data showed Business Investment in the UK fell at its sharpest annual rate in the data's 43 year history. GBP/USD hit a fresh month low of 1.5272 and EUR/GBP the day's high of 0.8830 for a half penny gain on the day.

The CBI distributive trade survey, out later than usual Thursday at 1245 GMT is of importance given that slowing consumer confidence has become evident in the major developed economies over the past few months, notes BNP Paribas. Any signs that the UK consumer is slowing will just add to sterling's problems, says the bank, and with GBP/USD already below support at 1.5365 a weak survey could tip it over the edge toward an initial target of 1.5065. GBP/USD now at 1.53. HSBC is looking for reported sales at -5 vs -8 in January.

GBP/USD is back under pressure, the outlook is negative and the targets remain 1.5270, and then 1.4850, says Commerzbanks' Karen Jones. Now trading at a 9-month low of 1.5302; she says while capped below 1.5830 a negative bias is maintained.

Look for more losses in EUR and GBP soon as the German Finance Ministry prepares to brief the budget committee on Greece at 0815 GMT, warns Societe Generale. Coming on top of Moody's warning that it may cut Greece's debt rating if the economy deviates from its fiscal consolidation plan, the briefing will attract market attention, the bank says. "Given the German stance on the prospects of a bail-out, potential negative headlines could fuel risk aversion further and weigh on the EUR and the GBP."

EUR/JPY extends losses; "players are trying to break the Y120.00 technical support. It's very possible to fall toward Y119.50 in a global day as sentiment is clearly worsening," says trader at major Tokyo bank. Says speculators, retail investors sell risk-sensitive EUR on lingering concerns over euro-zone fiscal debt. Adds, USD/JPY also down, last at 89.42, may decline to 89.00. Investors likely to keep eye on U.S. durable goods orders, due 1330 GMT; if that comes in weaker than expected, fueling risk-aversion, USD, EUR may face downward pressure vs JPY. Dow Jones poll of economists expect data to rise 1.5% in January vs 1.0% in December. EUR/JPY last 120.48, after hitting 1-year low of 120.24.

Volatilities implied by 1-month ATM USD/JPY options rise to 11.15%/11.85% from 11.10%/11.80%. Further gains limited despite spot's break below 90.00; options dealers say that's because investors already have plenty of options with strikes around 90.0. "These options are good for a week or so," one says - this means vols likely won't rise much unless USD/JPY moves more sharply, or pair remains around current levels next week, when many options expected to expire and investors buy new ones. USD/JPY last 89.71.

USD/JPY, EUR/JPY lower as Japanese exporters sell, while congressional testimony from Fed Bernanke expected to allay investor concerns over earlier-than-expected rate hike in U.S, says senior sales dealer at major Japan bank. Mitsubishi UFJ Trust and Banking senior dealer Hideaki Inoue expects USD, EUR to remain weak vs JPY for now due to lingering concerns over debt troubles in Greece. USD/JPY may fall to 89.70 vs last 90.16. EUR/USD may fall to 1.3500 from last 1.3514. EUR/JPY may fall to 121.50 vs from 121.81. If 121.50 broken, pair may start falling toward 120.00, he says

Weekend meeting of deputy finance ministers, central bank governors in Korea is first G-20 gathering of year, says Brown Brothers Harriman, but FX market "does not appear to be very salient to policy makers at the moment, outside of the obvious desire on the part of the U.S. and Europe especially for yuan" gains. "The real focus is elsewhere. Three issues are reportedly on the top of the agenda: Exit strategies, framework for sustainable and balanced growth, and restructuring the governance of the IMF and World Bank." Largely seems "puff stuff, which might explain why the meeting is not on the market's radar. What does international cooperation on exit strategies really mean? Who doesn't want a framework for sustainable and balanced growth? Is there really one that is broadly applicable?" Says something about agenda that most promising topic may be governance of IMF, World Bank. G-20 "meeting is not a risk event. It is unlikely to produce a joint statement. But there could be useful information about issues and countries' positions."

USD downside limited vs major rivals this week as it may get support from U.S. interest rates, says Barclays Capital chief FX strategist Japan Masafumi Yamamoto. Notes while market's focus likely to remain U.S. data such as durable goods orders later in day, "the dollar will be supported even if these data turn out to be weak" as U.S. yields unlikely to fall due to Treasury auctions this week. USD/JPY last at 90.27, EUR/USD last at 1.3540. 10-year Treasury yield last up 0.007% to 3.691%.

USD/JPY - to consolidate with risks skewed higher after hitting 6-session low 89.74 yesterday. Pair underpinned by buying of yen crosses amid stronger risk appetite (VIX fear gauge eased 5.15% to 20.27), Wall Street gains (DJIA up 0.89%, Nasdaq up 1.01%) after Fed Chairman Bernanke reassured investors that central bank will keep interest rates near zero for "an extended period." USD/JPY also supported by USD demand for import settlements; but topside limited by Japan exporter sales, broadly weaker USD undertone (ICE spot dollar index last down 0.1% at 80.78) as ultra-loose U.S. monetary policy weighs, weak U.S. January new home sales - plunged 11.2% on month against expectations for 3.8% rise, erasing all of last year's housing-market gains. Data focus: 1315 GMT Fed's Pianalto speaks, 1330 GMT U.S. January durable goods orders, Feb. 20 weekly jobless claims, 1400 GMT Fed Chairman Bernanke Senate testimony continues, 1600 GMT February Kansas City Fed manufacturing index, 1815 GMT Fed's Bullard speaks, 2130 GMT U.S. Feb. 15 money supply. USD/JPY daily chart mixed as stochastics bearish, but MACD still in bullish mode. Resistance at 90.37 (yesterday's high), then at 90.54 (previous base set Feb. 18); breach would expose upside to 91.29 (Tuesday's high), then 91.90 (Monday's high), 92.14 (Friday's high, just below 200-day moving average) and 92.43 (Jan. 12 high). Support at 89.69 (Feb. 16 low), then at 89.56 (Feb. 12 low); breach would expose downside to 89.12 (Feb. 8 low), then 88.54 (Feb. 4 reaction low).

EUR/USD - to range-trade. Pair underpinned by weaker USD sentiment after Bernanke's assurance of near-zero interest rates for several months, EUR demand for long-EUR carry trades on better risk appetite, strong euro-zone December new industrial orders (rose 9.5% on year for biggest annual gain in 20 months). But EUR/USD topside limited by ongoing concerns over Greece's fiscal problems--S&P warned it could downgrade Greece by one or two notches within next month to put country's long-term rating on brink of junk territory. Data focus: 0900 GMT euro area January monetary developments, German February labor market statistics, 0910 GMT euro-zone February retail PMI, 1000 GMT euro-zone February business climate & economic sentiment indicators. EUR/USD daily chart mixed as MACD bullish, but stochastics bearish at oversold; inside-day-range pattern completed yesterday. Support at 1.3494 (Tuesday's low); breach would expose downside to 1.3442 (9-month low hit Friday), then 1.3420 (May 18 reaction low), psychological 1.3400 and 1.3294 (projected base of descending channel formed with Dec. 3 high of 1.5141 and Dec. 22 low of 1.4216). Resistance at 1.3626 (yesterday's high); breach would expose upside to 1.3691 (Tuesday's high), then 1.3789 (Feb. 17 reaction high), 1.3801 (Feb. 11 high) and 1.3839 (Feb. 9 reaction high).

AUD/USD - to consolidate with risks skewed higher after hitting 7-session low of 0.8854 yesterday. Pair underpinned by expectations of 25-bp RBA rate hike Tuesday, AUD demand for long-AUD carry trades on increased risk appetite, weak USD sentiment, firmer commodity prices (CRB spot index closed up 2.34 yesterday at 274.74). Data focus: 0030 GMT Australia 4Q private new capital expenditure & expected expenditure. AUD/USD daily chart mixed as stochastics bearish, but MACD still in bullish mode. Resistance at 0.8955 (yesterday's high); breach would expose upside to 0.9071 (Tuesday's high, coinciding with 100-day moving average), then 0.9152 (76.4% Fibonacci retracement of 0.9330-0.8576 Jan.14-Feb.5 decline). Support at 0.8854 (yesterday's low), then at 0.8845 (Feb. 15 low); breach would tilt near-term outlook toward negative, exposing downside to 0.8781 (Feb. 12 low), then 0.8707 (Feb. 10 low).

NZD/USD - to consolidate with risks skewed higher after hitting 2-week low 0.6866 yesterday. Pair underpinned by NZD demand for long-NZD carry trades on higher risk appetite, soft USD sentiment, firmer commodity prices. Data focus: 0200 GMT NZ February NBNZ business outlook. NZD/USD daily chart mixed as stochastics bearish, but MACD still in bullish mode. Resistance at 0.6952 (yesterday's high); breach would expose upside to 0.7058 (Tuesday's high), then 0.7079 (Feb. 16 and Feb. 17 high), 0.7122 (50% Fibonacci retracement of 0.7441-0.6803 Jan. 14-Feb. 5 decline) and 0.7132 (55-day moving average). Support at 0.6866 (yesterday's low); breach would tilt near-term outlook toward negative, exposing downside to 0.6803 (5-month low hit Feb. 5), then psychological 0.6700 level and 0.6682 (Sept. 2 reaction low).

GBP/USD - to range-trade. Pair underpinned by positive risk sentiment, broadly weaker USD undertone. But GBP/USD topside limited by lingering investor concerns over weak UK fiscal situation, BOE's Posen saying yesterday there is potential for central bank to do more quantitative easing. Data focus: 0930 GMT UK 4Q business investment provisional results, 1245 GMT UK CBI quarterly distributive trades survey, 1800 GMT BOE's Miles speaks. GBP/USD daily chart negative-biased as MACD bearish, stochastics stays suppressed at oversold, suggesting sideways or lower GBP/USD trading near-term. Support at 1.5385 (yesterday's low); breach would target 1.5345 (9-month low hit Friday), then psychological 1.5300 and 1.5271 (50% Fibonacci retracement level of advance from Jan. 23, 2009 low of 1.3500 to Aug. 5 high of 1.7042). Resistance at 1.5476 (yesterday's high); breach would expose upside to 1.5575 (Tuesday's high), then 1.5687 (Feb. 18 high), 1.5816 (Feb. 17 high), 1.5830 (previous base set Dec. 30) and 1.5848 (previous base set Feb. 1).

USD/CHF - to range-trade. Pair undermined by weaker USD sentiment; but downside limited by short-CHF carry trades on positive risk sentiment, fears of more SNB's CHF-selling FX intervention. Daily chart mixed as stochastics stays elevated at overbought, MACD neutral; inside-day-range pattern completed yesterday. Resistance at 1.0848 (Tuesday's high); breach would expose upside to 1.0898 (7-month high hit Friday), then 1.0934 (July 30 reaction high) and 1.1020 (June 24 reaction high). Support at 1.0734 (yesterday's low); breach would target 1.0710 (Tuesday's low), then 1.0644 (Feb. 17 low), 1.0623 (Feb. 11 low) and 1.0605 (Feb. 9 reaction low).

USD/CAD - to consolidate with risks skewed lower. Pair undermined by positive risk sentiment, weaker global USD, firmer commodity and oil prices (Nymex crude settled up $1.07 yesterday at $79.93/barrel). Data focus: 1330 GMT Canada December weekly employee earnings. USD/CAD daily chart mixed as stochastics bullish, but MACD still in bearish mode. Support at 1.0509 (yesterday's low); breach would expose downside to 1.0379 (Tuesday's low), then 1.0368 (Monday's low), 1.0301 (Jan. 20 low) and 1.0246 (Jan. 19 low). Resistance at 1.0592 (yesterday's high); breach would expose upside to 1.0631 (Feb. 11 high), then 1.0707 (Feb. 10 high), 1.0780 (Nov. 6 & Feb. 5 high, coinciding with 200-day moving average) and 1.0869 (Nov. 2 reaction high).

EUR/JPY - to range-trade. Cross supported by carry trades amid healthier investor risk appetite; but topside limited by ongoing worries over euro-zone sovereign debt problems. EUR/JPY daily chart mixed as stochastics bearish, but MACD still in bullish mode. Support at 121.55 (Tuesday's low), then at 121.37 (Feb. 12 reaction low); breach would expose downside to 120.67 (1-year low hit Feb. 5), then psychological 120.00 level. Resistance at 122.62 (yesterday's high); breach would expose upside to 124.56 (Tuesday's high), then 125.23 (Monday's high), 125.91 (38.2% Fibonacci correction of 134.39-120.67 Jan. 11- Feb. 5 decline) and 126.97 (Feb. 3 reaction high).

EUR/GBP - to trade with risks skewed higher. Daily chart positive-biased as MACD & stochastics in bullish mode. Resistance at 0.8810 (yesterday's high); breach would target 0.8836 (Tuesday's high), then 0.8846 (Feb. 11 reaction high), 0.8929 (100-day moving average) and 0.9028 (Jan. 12 reaction high). Support at 0.8745 (previous cap set Feb. 16); breach would temper near-term positive outlook, exposing downside to 0.8699 (Friday's low), then 0.8656 (Feb. 12 low) and 0.8627 (Jan. 29 low).