Three-year ECB LTRO in focus today

<p>GBP/USD Range: 1.5660 – 1.5684 Support: 1.5550 Resistance: 1.5750 Sterling trades with a positive tone as risk is back in favour although liquidity is at […]</p>

Range: 1.5660 – 1.5684
Support: 1.5550
Resistance: 1.5750

Sterling trades with a positive tone as risk is back in favour although liquidity is at a premium in holiday mode trading. Middle Eastern end of year demand yesterday caught the market short, with the flow triggering stops and model demand. Today we see the release of MPC minutes, with the consensus expecting a 9-0 vote to keep monetary policy and asset purchase levels unchanged. The market will be looking for signs of additional QE.

Range: 1.3075-1.3127
Support: 1.3045
Resistance: 1.3145

The stronger IFO and a good Spanish auction inspired a solid risk rally that has the market bullish for a 2011 close of 1.3220. The proof in the pudding will no doubt be the take up of the ECB’s 3-year LTRO facility results today, with expectations of a risk positive outcome. 181 banks borrowed 57 billion euros in October, but this month’s estimate is between E400-500 billion as European policy makers do all they can to encourage banks to use the facility. A solid take up will be seen as a positive to risk as this helps balance sheets and encourages sovereign investments.

Range: 77.76-77.91
Support: 77.30
Resistance: 78.30

USD/JPY edged slightly lower within dull trading as general dollar weakness dominated proceedings, but with EUR/JPY climbing back onto a 102.00 handle, the pair remained supported in the high 77’s. The BoJ left policy unchanged as expected but lowered its economic outlook, saying the recovery had stalled. In a similar vein, Reuters reports that the Japanese government now expects the economy to contract by 0.1% over the fiscal year of 2011/2012, having previously forecast 0.5% growth.

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