Daily Outlook - March 12, 2007

In my daily outlook yesterday I had overlooked UK Trade Balance which comes out today at 9:30am London time. Experts predict and the market has priced in a slight narrowing of the UK trade deficit. Depending on where the number actually comes out, this report could move the GBP/USD and so we will be cautious within 30 minutes of the report.

The USD rallied after the Fed announced a plan yesterday to lend up to $200 billion in U.S. treasuries backed by private mortgage securities. The move was initially positive for both the dollar (GBP/USD bearish) and for the carry trade (GBP/JPY bullish). Since the report, the dollar has given back most of it's gains. However, market sentiment still remains positive for the dollar with the move appearing to signal that the Fed may be trying alternative means to prop up the U.S. economy other than lowering rates again. Fed fund futures are now only pricing in a 62 percent chance of a 75 bps rate cut, down from 98 percent chance Monday.

Into the asia session, positive news out of Japan (here and here) kept the GBP/JPY from rising higher than yesterdays high of 207.71. It will be interesting to see if there is any added follow through in the European sessions today in response to the central banks' plans to help the credit crisis. The outlook for our strategy today is positive as all we look for is volatility and direction, something that more than likely today's session should have.

In short:
- GBP/USD strategy we will be cautious nearing the Trade Balance news announcement.
- GBP/JPY strategy will take all entry signals according to system rules .
- We will take our first USD/JPY trade today as yesterday's announcement has provided an ideal situation to get in. However, we will only take 1/2 the typical risk.

Things to watch:
Stocks around the world(here, here) rose on the central banks' plans including the U.S. markets gaining the most ground in 5 years. Rising equity markets usually translates into rising Carry trade investments.