Morning Forex Review – 25 January
A cautious tone remains in the markets, but sentiment improved through the North America session. Equities are still largely in negative territory, but are off the lows. In FX, GBP retains top spot, although moves overall are quite narrow. JPY, NOK and AUD underperformed. EUR/USD is struggling (thus far successfully) to hold above $1.3000. As sentiment stabilized, USD slipped from its high of 80.184 (DXY-basis), with support at 79.838 still in focus. If something draws particular attention it is USD/JPY, which is down 0.9% and is above trend line resistance back to late October. As well, EUR/JPY is back over 100, and is also currently above 100.76, the early October low that was broken late in 2010. The 50-dma looms at 101.44.FX vols have notably bounced from their recent lows.
USD/CAD remains above 1.01 (overnight high of 1.0141). Oil remains soft with $98.50/bbl in focus. Canadian November retail sales data were fine, although USD/CAD showed little reaction. Retail sales rose 0.3% (cons: 0.2%), following an 0.9% gain in October (was 1.0%). Spending on clothing and sporting goods led the way, though volumes were up a solid 0.5%. Pretty good numbers overall.
Coming up Today (All Times GMT)
• EUR – German Ifo Business Climate (09:00)
• GBP – MPC Meeting Minutes (09:30)
• GBP – Prelim GDP q/q (09:30)
• USD – Pending Home Sales m/m (15:00)
• USD – Crude Oil Inventories (15:30)
• USD – FOMC Statement (17:30)
• USD – FOMC Press Conference (19:15)
• NZD – Official Cash Rate (20:00)
• NZD – RBNZ Rate Statement (20:00)
The European Central Bank’s Executive Board member and newly appointed economics department head Peter Praet told a German newspaper in an interview that there are signs that the euro zone’s economy is stabilizing. He added that while the ECB’s recent unprecedented injection of half a trillion Euros in the form of 3-year loans had helped bond markets, it should not be classed as state financing and that credit conditions were still expected to remain tight. He also said a country leaving the euro was not an option and that a further recapitalization of the ECB or euro zone national central banks was not on the agenda.
USDJPY
The dollar rose to a four-week high of 77.89 yen, the pair last traded at 77.87 yen, with resistance said to lie at the Nov. 28 high of 78.29 yen. Moreover Japan’s benchmark Nikkei average closed up 1.12 percent at 8,883.69 on Wednesday, while the broader Topic gained 1.32 percent to 767.40. EUR/JPY rises to fresh four-week high. The euro hits fresh four-week high of Y101.33 early in the Asian session before steadying at 101.26. The pair was trading above 109 as recently, before falling to an 11-year of 97.04 in mid Jan.
USDJPY Support/Resistance: 76.85/77.98
EURJPY Support/Resistance: 99.40/101.50
GBPUSD
Britain’s economy contracted at the end of last year, growth numbers are expected to show on Wednesday, pointing towards a mild recession and setting the stage for further stimulus by the Bank of England.
A preliminary estimate of gross domestic product by the Office for National Statistics is forecast to show the economy shrank by 0.1 percent in the three months to December, according to a Reuters poll, after 0.6 percent growth in the previous quarter. The opposition Labour Party has accused the government of focusing too much on spending cuts rather than boosting growth as a way to reduce record public debt levels, which breached the one trillion pound barrier in December. The Bank of England forecasts economic stagnation until mid- 2012.
GBPUSD Support/Resistance: 1.5510 / 1.5627
GBPJPY Support/Resistance: 119.62 / 121.75
IMF’d: The IMF did indeed reduce its global growth forecast for 2012 to 3.3% from 4.0%, while also lowering its 2013 projection to 3.9% from 4.5%. The US was the only country in the list whose growth forecast was left unchanged, at 1.8%. The US is also seen leading the way among the major industrialized nations in 2013 at 2.2%. World trade volume growth was cut to 3.8% from 5.8% for 2012, suggesting that the pace will have slowed by around 50% relative to the prior year in 2011 and 2012. Meantime, the IMF is pre-occupied that EU turbulence could swamp the positive impact of a US expansion.
Commodities and Markets: Alhough the IMF did cut its growth forecasts, commodity prices paid little attention, rebounding along with risk sentiment. Hence, copper prices continue to remain very much within reach of the 200-dma at $3.85. Similarly, the DAX index continues to hold above the 200-dma. Key tests of recent upswings in several risk sensitive asset prices continue to loooooooooooooom large.