Risk Off, USD Profit Taking Persists

KEY DATA RELEASES TODAY (GMT) :

0930 GBP Retail Sales m/m 0.4% v -0.3%
1100 GBP CBI Realized Sales 16 1
1230 USD Unemployment Claims 291K v 291K
1300 USD FOMC Member Lockhart Speaks
1730 GBP BOE Gov Carney Speaks

OVERNIGHT:

Risk sentiment has taken a hit the past 24 hours or so, as geopolitical risks in the Middle East have intensified, sending oil prices as high as 5pct this morning. The reaction in USDJPY has been muted, albeit predominantly and understandably seeing pressure to the left. Fiscal year end ­related flows have also played a factor in the pair’s heavy tone. Nonetheless, as options desks have pointed out, gamma is quite offered in the near term, a testament of lack of fast money interest in the pair for now. For now the trade in the bullish Japan story is in Nikkei, and not in USDJPY, as evidenced by the breakdown in correlation of the two as well as political hesitation to see the JPY weaker from here ahead of the TPP negotiations and regional elections next month.

Institutional flow reports are mixed for the EURUSD but predominantly highlight corporate and real money selling in rallies. Nonetheless, the pair trades relatively bid, gradually being paid up towards the psychological pivot of 1.10 again. In this current risk­off environment, funding currencies such as the EUR has found some demand (most especially against the likes of AUD and EM), helping keep EUR supported as well. The market maintains a medium term bearish outlook in the pair, given the volatile nature of short­ term price action there is the potenital for a further squeeze as oder books continue to be cleansed.

The under performance of the GBP continues, market retains a bearish view in cable. The inflation data has only reinforced the recent doveish tone from various BOE members, and the pound has outperformed in the crosses, most especially against the EUR. 0.7400 is the resistance level to watch in the cross, while the support level to watch in GBPUSD is 1.4850/60 initially. Today we get UK retail sales, and the path of least resistance for the GBP is lower (i.e. a weaker than expected print).

PRICE ACTION OVERVIEW:

EUR: While 1.0760/40 supports target 1.1190/1.1210 equality corrective target
GBP: While 1.5030/50 contains upside target 1.4630
JPY: While 118 contains downside target 124.00
CAD: While 123.50/124 contains downside target 130
AUD: While .7940/6- contains upside target .72