ECB Monetary Policy Meeting to Set Today’s Trading Tone; S&P 500 Continues to Pressure 1350

The Euro continues to press higher ahead of today’s ECB monetary policy meeting where most of the attention is going to be placed on the statements released at the press conference after the meeting.  The extent to which the ECB will be involved in the final Greek debt swap agreement is the main issue, given that markets are not expecting any changes to the base interest rate in the Eurozone.  Recent price activity in the Euro is indicative of a generally optimistic tone so it looks unlikely that there will be any news today that will send prices much higher.  Downside risks in equity markets and high yielding currencies is a much more likely scenario given that most of the potential good news has already been priced-in.

In the UK, the Bank of England will also hold its monetary policy meeting today and markets are generally expecting an announcement of additional quantitative easing stimulus, which will come in the form of a 50 billion GBP increase in its asset purchase program.  Any announcements less than this figure will weigh on the FTSE 100 and lead to a modest rally in Sterling.  We will also see some important macro data for the region, with the NIESR Gross Domestic Product GDP survey, Industrial Production and Trade Balance all scheduled for release.  Earnings figures will be reported by Rio Tinto, BG Group, Rolls Royce and Landsdown.

The main stories out of Asia overnight related to macro data which showed that Japanese machinery orders were negative in December and Consumer Price figures in China were seen higher in the month of January.  Both of these reports are a negative for regional equity markets and most of the Asian indices were seen lower on the session.  Nissan Motors added to the downside pressure in the Nikkei 225, on weaker results in its third quarter earnings report.

In the US, S&P futures are showing an essentially unchanged open, with macro data today coming in the form of Initial Jobless Claims and Wholesale Inventories.  Earnings reports will be the bigger story today, however, as Pepsi Co., Philip Morris, Coca Cola and Expedia are all scheduled to report quarterly profits.  These earnings report will create additional volatility during the New York session but the general tone for the day is more likely to be determined by the ECB press conference today and the concluding comments from central bank President Mario Draghi.

Technical Analysis:

The EUR/JPY has formed a very clear range on the hourly charts but the top side resistance levels are coming under pressure and the higher lows are suggestive of an upside break.  The MACD reading is also supportive of this, as it is showing a fresh cross into positive territory.  All we need to see is a daily close above 102.35 to confirm the break and this will target the next Fibonacci level on the daily charts.

The S&P 500 is still grinding higher but we are coming into some major long term resistance levels and momentum is slowing, which is suggestive of a topping formation.  Any breaks in the 1350 level are unlikely to see much follow through as a result of this, so risk to reward favors sell positions at current levels.  A break of support at 1330 will take immediate pressure off of the topside.

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