Asian Session - Markets Wait on BoE & ECB

Market Brief

The Usd was slightly stronger in the Asian session, as positive developments are being taken with a bit of skepticism. The EurUsd peaked at 1..2665 before trading down to 1.2576, while the UsdJpy was range bound before breaking to the upside to 99.68. The Jpy will continue to come under pressure, as longer term players step into the market the closer we come the psycological 100. Pressure in CEE 4 continues, with the Huf as again the weakest currency in the region. US equity markets closed higher with all sectors improving, except financials. Without a convincing rally in banking stocks, we doubt risk appetite will improve drastically. Asian equity indexes are trading higher on the back of reports that China will announce an additional stimulus package and comments that officials are sticking to a 8% growth target for 2009. Crude prices have been heading higher, as speculation increases that OPEC will cut output. However there seem to be little consensus among members. Today’s focus will be on the BoE & ECB interest rate decisions with both central banks expected to cut.

In Australia, Building approvals in January fell by -3.7%, much weaker than expected by the market (1.6%). This was the 7th lower surprise in 7 months and putting the Y/Y a whopping 33.5 % lower. Trade balance came in at 970m vs. 1100m exp.

With much speculation, the opening of China 's annual NPC meeting today contained no news of an additional package above the CNY4 trn already announced. Premier Wen in his opening address said the government would target a growth of 8% this year.

The first central bank up today will be the BoE, which is expected to cut rates by 50bp. However, more important than the actual ease will be any talk of quantitative easing. The BoE is waiting and expected to approval from the Treasury to begin QE, but limits are expected. It's the timing and extent of the QE which concerns the market and traders will be scrutinizing any comments by Governor King following the rate decision.

Next will be the much anticipated ECB rate announcement and press conference. Market is expecting the central bank to cut rates 50bp to a record low of 1.50%. Recent economic data showing further deterioration will be worrying Governing Council members. Growth measurements have fallen, while inflation is trending lower. ECB Governing Council member Weber has increased his dovish rhetoric and just recently noted that the usage of alternative monetary policy tools cannot be ruled out. We expect Trichet to highlight weakness in growth and keep the door open of further easing. Given other central bank acceptance of quantitative easing we expect the issue to be addressed in the subsequent press conference. Any hint or signal that the ECB is also considering such action will pressure the Euro.

Currency Tech

AUDUSD
R 3: 0.6800
R 2: 0.6642
R 1: 0.6555
CURRENT: 0.6434
S 1: 0.6287
S 2: 0.6250
S 3: 0.6077

EURJPY
R 3: 126.50
R 2: 126.05
R 1: 125.65
CURRENT: 125.25
S 1: 122.39
S 2: 121.75
S 3: 119.08

USDSGD
R 3: 1.5840
R 2: 1.5653
R 1: 1.5595
CURRENT: 1.5517
S 1: 1.5437
S 2: 1.5245
S 3: 1.5130

• S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot