No Proposal From Brussels & Waiting on the FOMC

Gestrige Neuigkeiten und Ereignisse: Yesterday’s Eurogroup meeting in Brussels provided nothing of note and we don't expect anything of real substance from today's wider Ecofin group of 27. The markets should be hit with comments from EMU nations on their pledge of support for Greece, but will lack an official bailout plan. We still believe that the EC strategy will be to drag their feet as long as possible in the hopes that markets “normalize” and any shift in the original tone of the Maastricht Treaty can be completely avoided. Baring any official commitment on aid, we believe the EUR will continue to be sold on rallies (especially given uncertainty around Greece to re-finance debt maturing in the Spring). The FOMC rate decision on today should be pretty run-of-the-mill, with the accompanying statement reiterating policy rate 'exceptionally low' for an 'extended period' and even mentioning positive progression in economic conditions. Generally, BoJ’s two-day meeting is hardly a mark in FX trader calendar. However, this week’s should warrant a great deal more attention. In recent weeks, the government pressure on the BoJ has intensified, including today’s comments from Japanese FM Kan, who stated that the BoJ has been working and will continue to work with Government to beat deflation and the central bank understands Government’s expectations through discussions in Parliament. A number of media reports have speculated that the BoJ policy board is ready to introduce measures necessary to create an even loser form of monetary policy. While we believe QE is around the corner, with policy rate of 0.1% there is not much room for further contraction. Without a wider US- Japan yield differential, USDJPY upside will be limited (unless we see FX decouple form yields). In the UK, the BoE MPC minutes are due on Wednesday and markets expect a unanimous vote to hold monetary policy unchanged. There has been a growing call for further quantitative easing from several members and we expect that additional £25bn asset purchases remains in place. However, the timing of the increase will be variable, based heavily on CPI coming down. In this environment, we expect the GBP to come under significant selling pressure falling below 1.5000 this morning (already hearing grumbling over low liquidity). The SNB appears to be letting EURCHF slip gently, despite last week reiteration of FX interventionist stance. Given recent comments and official inflation forecasts, we would trade very gingerly around these levels.  As we had stated yesterday things are heating up around the USD - CNY relations with around 130 members of Congress signing a letter expressing ‘serious concerns about China’s manipulation of its currency’. With the soft sell failing to motivate China, the US seems to be switching to hard ball. And on a side note, the article in the New York Times on the Junk Bonds coming due in 2012 should be read. Overall, in this environment, especially considering the Greek situation and UK potentially reinstating their QE, we favor long USD and EM positions. We are highly suspicious of any JPY strength and would be looking to fade positive news.

Wichtigste Themen heute (Zeit in GMT): 00:00 JPY BoJ Policy Board begins two-day meeting. 00:00 EUR ECB 7-day fixed 1.0% liquidity tender. 07:45 EUR FRA Feb HICP - final, +0.3% m/m, +1.1% y/y exp; last -0.2%, +1.2%. 07:45 EUR FRA Feb inflation ex-tobacco; last -0.2%. 09:00 EUR ITA Feb HICP - final, unch m/m, +1.1% y/y e exp; last -1.5%, +1.3%. 10:00 EUR Feb HICP - final, +0.3% m/m, +0.9% y/y exp; last -0.8%, +1.0%. 10:00 EUR Feb HICP ex-F/E, +0.4% m/m, +0.8% y/y exp; last -1.3%, +0.9%. 10:00 EUR GER Mar ZEW sentiment index, 43.7 exp; last 45.1. 10:00 EUR GER Mar ZEW current conditions index, -52.0 exp; last -54.8. 12:30 USD Housing starts, thous Feb 570 exp 591 prior 12:30 USD Import prices, % m/m (y/y) Feb -0.1 exp, 1.4 (11.5) prior 12:30 USD Nonpetroleum import prices, % m/m 0.6 (1.2) prior 14:00 USD TsySec Geithner, OMB Orzag, CEA Romer House testimony. 14:45 EUR ECB Stark speech in Brussels. 18:15 USD FOMC statement on monetary policy. 25% hold 19:00 GBP BoE MPC Bean speech in London

Risiken heute: EurUsd The epic battle between EURUSD’s short-term uptrend and long-term downtrend has swung in favour of the downtrend in the past 24 hours; with those speculators late in on the move last Friday forced to capitulate at lower levels once the price broke down through 1.3725 support and back into the old channel. That nemesis of trendline resistance now comes in at 1.3740 above; a level that is likely to be particularly sticky from previous price action around 1.3735 when the range was in play. Nevertheless, whilst 1.3530 support below remains, we still favour buying on dips and anticipate another break above trendline resistance to quickly re-test the 1.3800 fibonacci level (50% of 1.2457-1.5145) that capped the rally on Friday. We must however remain wary that a break below 1.3530 would likely threaten the lower bound of our short term uptrend (currently seen at 1.3510), and would then open up a further move to 1.3425 support below. GbpUsd Although we continue to side with the bulls on this pair after the break of the 2 month downtrend channel, the short-term uptrend we highlighted yesterday has since broken down, and if anything it looks like we may be headed for a period of rangebound consolidation from here –echoing EURUSD’s outlook a month ago. Friday’s 1.5218 print represents the high water mark in our view, whilst good support and proposed range floor comes in at 1.4855. This latter level has held on two previous occasions this month, and has the two-fold benefit today of also coinciding with the back side of the former downtrend channel. As such, we like to buy on dips toward that 1.4855 floor (but setting a strict stop just below the former downtrend), and look for rallies back up to 1.5200. If we are wrong on this one and trendline support gives way, there’s a big drop to next supports below at 1.4780 then 1.4515. UsdJpy Despite a grind lower in USDJPY yesterday, the charts are still shaping up rather nicely for the bulls, with very good support forthcoming on visits back towards the former downtrend. The back side of the trendline comes in today at 89.90 below, so our view remains constructive until that support is broken. The 100-day moving average comes in at 90.11 below so we prefer buying on dips toward that level, setting a stop back within the old channel at 89.75, and looking for a re-visit of 90.90-91.00 levels above. However we do concede that further progress on the upside is likely to be hampered by a number of technical levels above; the 91.08 highs from 12 March represent the first hurdle to overcome, with the 200-day moving average then providing an area of supply at 91.73. Obviously we need to remain nimble if a return to the downtrend channel takes place; as the immediate targets below lie at 89.50, 88.75, then 88.15. UsdChf USDCHF’s attempted rally yesterday afternoon was easily batted away by the support-turned-resistance at 1.0650, and the pair has since slumped back towards 1.0600 levels this morning. We still like selling on rallies for the time being, and see a possible bearish flag continuation pattern forming on the hourly chart; the upward sloping support on this flag comes in around 1.0595 at the moment which, if broken, would aim for a target around 1.0480 – a level that coincides with the back side of the former 12 month downtrend.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.4000 1.5615 92.15 1.0900 1.3850 1.5350 91.80 1.0800 1.3800 1.5278 91.10 1.0750 1.3680 1.5055 90.50 1.0680 1.3530 1.4885 90.15 1.0500 1.3425 1.4780 89.50 1.0480 1.3300 1.4700 89.00 1.0425 S: Stark, M: Klein, T: Trendlinie, K: entscheidende Marke, P: Pivot-Punkt