Forex: European Equities Optimistic but European Currencies Lag
ASIA/EUROPE FOREX NEWS WRAP
High beta currencies and risk-correlated assets are moving higher to start the week, with the Australian and New Zealand Dollars as the top two performers, while the third commodity currency, the Canadian Dollar, is up modestly as well. With European equity markets having a strong day and bond yields remaining relatively unchanged, the way has been paved for a continuation of the overnight rally in the US session today; Gold and Silver are both higher as well, as a sign of confirmation.
There are two main reasons why sentiment may have improved over the weekend: the Euro-zone meeting on Tuesday will likely yield more aid for Greece; and the US fiscal cliff/slope looks like it will be avoided.
With no new news outside of some outside chatter that Greece will ultimately get what it needs, we’ll concentrate on the US. Following a sound defeat at the hands of President Barack Obama and the Democrats, Republicans have been back-peddling the past two weeks on issues across the board, but have becomes increasingly more pliable on how to raise government revenues. Ultimately, given the election results, it is likely that any resolution agreed to will result in a slight tax hike, entitlement reform, and tax reform, giving both parties what they desire, perhaps tilted in the Democrats favor.
Accordingly, US are politicians taking a reprieve from negotiations this week for the Thanksgiving holiday, which has markets in the US half-open on Wednesday and Friday, and closed on Thursday. Generally speaking, holidays tend to drain liquidity and leave trading conditions susceptible to random volatility or otherwise uninspiring price action)
Taking a look at credit, peripheral bond yields are mixed, perhaps preventing the Euro from having a stronger day. The Italian 2-year note yield has increased to 2.234% (+1.5-bps) while the Spanish 2-year note yield has increased to 3.266 % (+7.3-bps). Likewise, the Italian 10-year note yield has increased to 4.868% +1.5-bps) while the Spanish 10-year note yield has increased to 5.848% (+0.6-bps); higher yields imply lower prices.
RELATIVE PERFORMANCE (versus USD): 12:30 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.18% (+0.37% past 5-days)
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TECHNICAL ANALYSIS OUTLOOK
EURUSD: The EURUSD rebound on Friday has given way to some decent continuation, but remains below the key 1.2800/10 level. Thus, our levels remain unchanged. Support comes in at 1.2645/50 (100-DMA), and 1.2400/35. Resistance is 1.2800/05 (200-DMA, last week’s high), 1.2820/30 (mid-October swing low), 1.2880/1.2900, and 1.3015/20 (late-October high).
USDJPY: No change from Thursday: “The USDJPY has moved to the top of trend resistance near 81.15 and has broken above our key 80.50/70 level, leaving the mid-April swing high at 81.75/80 as the next major resistance level. Support comes in at 80.50/70 (former November high) and 79.10/30.”
GBPUSD: The downtrend that’s been in place for the past two months remains, though the GBPUSD finds itself hold both its 100-DMA and 200-DMA on recent declines, suggesting the medium-term trend is to the upside. Resistance comes in at 1.5910/15 (October low), 1.5955/60 (20-EMA), 1.5980/85 (50-EMA) and 1.6170/80 (late-October highs). Support is 1.5870/75 (100-DMA), 1.5845/50 (200-DMA), and 1.5800/05.
AUDUSD: The AUDUSD failed in the 1.0405/50 zone again on Wednesday, and is now threatening to break below trendline support off of the June 1 and October 23 lows at 1.0315/25. Support is there and 1.0235/80. Resistance is at 1.0355/70 (20-EMA, 50-EMA), 1.0405/50 (former swing highs and lows, October high) and 1.0500/15.
S&P 500: The key support noted for the past several weeks at 1350/65 has held. Although this is a broad zone, with multiple points of inflection occurring in this area, we know it will be an area in which buyers and sellers are looking at the market. If this breakdown is legitimate, then a healthy corrective rebound back towards 1380/85, 1400, and even 1420 could be possible. Support comes in at 1350/65 (monthly S2, ascending channel support off of November 2011 and June 2012 lows). Resistance comes in at 1383 (200-DMA) and1400/10 (20-EMA, 50-EMA, 100-EMA).
GOLD: Nothing has changed over the past three weeks, so neither has my bias: “Gold has consolidated just below its November highs, though considering that the US Dollar is at its strongest level in over two months, Gold is holding up well. As such, I still expect the 1700 area to be defended vigorously, and look to get long as low as 1675. Resistance is 1735, 1755/58 and 1785/1805. Support is 1700, 1680/85 (100-DMA, November low), and 1660/65 (200-DMA).”
--- Written by Christopher Vecchio, Currency Analyst
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