Forex: BoE Minutes Lift Pound; Yen Losses Continue Despite BoJ Pleas
ASIA/EUROPE FOREX NEWS WRAP
Commenting on the Japanese Yen yesterday I said: “no one believes [Bank of Japan] Governor Shirakawa that unlimited money printing is an unrealistic outcome at this point in time.” Indeed, despite the plea by the BoJ head, the Japanese Yen is having another massive down day, falling by -0.80% against the US Dollar as well as against every other major currency.
The Japanese opposition that stoked the Yen sell-off, with leader Shinzo Abe calling for a more aggressively dovish BoJ, citing the possibility of unlimited money printing, seems determined to destroy the BoJ’s independence in order to stoke growth; I doubt that this will be a successful endeavor. Silver lining: a weaker Yen will help Japanese exporters. That’s about it, though.
Elsewhere, the British Pound is a nudge higher though has recovered from its daily lows after the Bank of England October meeting Minutes showed that the Monetary Policy Committee is looking for ways other to stimulate the economy than QE – which they determined as having increasing ineffectiveness. If QE is off the table – a policy which, from the FX perspective, diminishes yield and dilutes the currency being targeted; no more QE from the BoE is thus bullish for the Sterling.
While this may be the case, it’s important to note the relationship the BoE has with the British government: both fiscal and monetary policies are used to counterbalance one another (as they should). As long as the British government is continuing along its tightening path, the BoE will be ready to provide stimulus, in whatever way it may be, which still could be inherently negative for the Pound longer-term.
Taking a look at European credit, peripheral bond yields are mixed, underpinning Euro weakness. The Italian 2-year note yield has increased to 2.138% (+0.5-bps) while the Spanish 2-year note yield has decreased to 3.065% (-6.6-bps). Similarly, the Italian 10-year note yield has increased to 4.843% (+0.8-bps) while the Spanish 10-year note yield has decreased to 5.691% (-7.0-bps); higher yields imply lower prices.
RELATIVE PERFORMANCE (versus USD): 12:00 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.36% (+0.28/% past 5-days)
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TECHNICAL ANALYSIS OUTLOOK (UPDATED: 14:00 GMT)
EUR/USD: No change from yesterday: “Last week’s high at 1.2800/10 was broken, but there’s been very little continuation and the daily RSI has had difficulty climbing over the 50 level; further downside may be in the cards. Overall, given the lack of volatility, my levels remain unchanged. Support comes in at 1.2650/55 (100-DMA) and 1.2400/35. Resistance is 1.2800/30 (20-EMA, 50-EMA, 100-DMA, last week’s high, mid-October swing low), 1.2880/1.2900, and 1.3015/20 (late-October high).”
USD/JPY: With 81.75 broken, the next levels to like higher to are the late-March highs at 83.20/35. As noted yesterday, however, “with the daily RSI overbought once more, the next corrective leg may be around the corner.” Support comes in at 81.75, 81.15, and 80.50/70 (former November high).
GBP/USD: No change: “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 1.5950/55 (20-EMA), 1.5975/80 (50-EMA) and 1.6170/80 (late-October highs). Support is 1.5880/85 (100-DMA), 1.5850/55 (200-DMA), and 1.5800/05.
AUD/USD: The AUDUSD failed in the 1.0405/50 zone again yesterday, after chopping through the area last week and failing to climb through on rallies in late-October and early-November. Support is at 1.0335/50 (trendline support off of the June 1 and October 23 lows) and 1.0235/80. Resistance is at 1.0405/50 (former swing highs and lows), 1.0475/80 (November high) and 1.0500/15.
S&P 500: No change: “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).” It’s worth noting that the S&P 500 found support at the 61.8% Fibonacci on the June 2012 low to the September 2012 high at 1345; this suggests the overall uptrend may be in tact.
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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