China trade data today followed by ECB, BOE later this evening


More choppy trade overnight and the market hasn’t decided yet on its first big trade of the year. Looks like its waiting for the ECB and BOE meetings to pass before committing one way or the other. Chinese trade data should also generate some volatility in the risk-trade pairs and the focus has returned to the topside in USD/JPY after a few days of profit taking.

The AUD remains quietly bid just above 1.0500 despite some poor trade and retail data over the last two days. Dealers say that US hedge funds and asset managers are the main buyers as they place their bets for the coming year by buying Australian stocks and assets. We can expect to see some stops sitting above 1.0585 (see chart) which might come into focus but the medium-term 1.02/1.07 range trade still looks like the way to go. The main risk event today is the Chinese data and we should look to AUD/JPY for any significant flows.

USD/JPY has rebounded nicely off yesterday morning’s lows, touching 88.00 in overnight trade. The short-term charts remain bullish (see chart) but the strength of the uptrend has certainly diminished in the face of heavy profit-taking. Significant optionality is still reported at 88.50, 88.75 and 89.00 and this is likely to act like a magnet in coming sessions.

The EUR remains choppy ahead of today’s ECB policy meeting. No change is expected in policy or tone but the market seems to be waiting for the event to pass before committing to one side or the other. General positioning remains quite low so we should see a big move once the market decides to commit. The EUR/USD daily chart is very mildly bullish (see chart) but further range-trading between 1.28/1.33 does look like the most likely outcome.

On the crosses, EUR/AUD reversed its recent gains and made new short-term lows overnight whilst EUR/JPY has completely run out of bullish momentum and has started trading sideways.

Cable is similarly in a holding pattern ahead of the BOE though sentiment does seem to be turning bearish after the failed break above 1.6300.

Good luck today.
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