Forex: Euro Rips Higher, Japanese Yen Collapses in European Trade
ASIA/EUROPE FOREX NEWS WRAP
Demand for high beta currencies took a hit overnight, but amid a strong Spanish bond auction and a significantly weaker Japanese Yen, the European currencies have emerged as the top performers thus far on Thursday. With respect to the Yen, Japanese Economy Minister Akira Amari backpedaled on recent comments about the Yen appreciating too quickly, thus undercutting what was seemingly the only reason to be bullish the past several days. Once again, the Japanese government stands united in their stance towards the Yen, which supports new Prime Minister Shinzo Abe’s assertion for a bold new leader at the BoJ to drive forward an aggressively dovish monetary policy. Policymakers meet on January 22.
The commodity currencies are struggling on the day following weak Australian and Chinese data, which has provoked speculation that the Reserve Bank of Australia will be forced to cut their key rate again in February, from 3.00% to 2.75%. Credit Suisse Overnight Index Swaps show that the probability of a 25-bps rate cut increased from 34% to 41% after the poor December Australian labor market report, which showed the economy unexpectedly lost jobs last month. More volatility in the Australian and New Zealand Dollars should be expected tonight (Asian session on Friday), with the Chinese 4Q’12 GDP report due.
Taking a look at European credit, peripheral yields are barely moved, offering neither support nor resistance to further Euro bullishness. The Italian 2-year note yield has increased to 1.324% (+0.1-bps) while the Spanish 2-year note yield has increased to 2.431% (+3.3-bps). Likewise, the Italian 10-year note yield has decreased to 4.159% (-1.1-bps) while the Spanish 10-year note yield has increased to 5.031% (+3.2-bps); higher yields imply lower prices. Although European yields are mostly unchanged, the results of another Spanish bond auction have proved promising, lifting the Euro on Thursday for the second week in a row. Spain sold €2.409B of 3.75% 2015 bonds at an average yield of 2.713%, down significantly from 3.358% at the previous 2015 auction in December.
RELATIVE PERFORMANCE (versus USD): 11:50 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.14% (+0.39% past 5-days)
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TECHNICAL ANALYSIS OUTLOOK
EURUSD: With no follow through below 1.3280, bulls have been reinvigorated at the former May highs. Accordingly, the RSI downtrend that was broken last week was the clue for further strength. Accordingly, I maintain that “focus is on buying dips.” This remains to be the case even as price has started to catch up to momentum. Support comes in 1.3280/3310, 1.3120/45, 1.3090/95 (50-EMA), and 1.3000 (January low). Resistance is 1.3380/85 (mid-March swing high) and 1.3485 (late-February swing high).
USDJPY: No change: “The pair’s rally has continued to its highest level since June 2010, essentially leaving the door open for a run above 90.00. Given BoJ policy, any dips seen in the USDJPY are viewed as constructive for further bullish price action (though I would like to clarify that this view is only valid until the BoJ meeting on January 22; the market remains very net-short the JPY, so a near-term top marked by an event seems possible (think the US Dollar bottoming the day after QE3 was announced)). Resistance comes at 89.10/35 (breaking now) (weekly R1), 89.60/70 (weekly high) and 90.10/15 (monthly R2). Support comes in at 88.40 (monthly R1) and 87.00/40 (weekly pivot).”
GBPUSD: No change: “The pair has fallen back from 1.6300, again, though with no follow through yet, my levels remain the same (they haven’t changed since early-December). However, the pair is now coming into ascending TL support off of the July and November lows at 1.6000. Support is there and 1.5900 (200-DMA). Resistance comes in at 1.6085/90 (50-EMA), 1.6180, and 1.6300/10 (post-QE3 announcement high in mid-September).” It should be added that a break below 1.6000 could accelerate through the 200-DMA towards the most recent swing low, at 1.5820/25 set in mid-November.
AUDUSD:No change: “The pair has broken the December highs and a break signals a push towards 1.0605/25. However, it’s worth noting that the daily RSI hasn’t pushed into overbought territory on any rally since February 2012. Accordingly, we’ll either see a move to new highs and with RSI confirming the breakout; or further consolidation/pullback is in order before the next leg higher. Support is at 1.0530/50 (weekly pivot, monthly R1), 1.0465/70 (weekly S1), and 1.0400/05 (weekly S2). Resistance is 1.0530/85 and 1.0605/25 (August and September highs).”
S&P 500: For the past several weeks I’ve maintained: “The S&P 500is back above a very significant zone of 1445/50 (descending trendline off of September and October highs, 100% Fibonacci extension off of the November 16 low, the November 23 high, and the November 28 low extension), and a move higher necessarily points to 1470/75.” With these levels to the upside breaking, a move above the September highs points to resistance at 1500 and 1520/25 (December 2007 high); a Bull Flag is potentially forming on lower timeframes (1H, 4H). Support comes in at 1450/55, 1425, 1400, and 1390 (200-DMA).
GOLD: No change: “Gold is at a make or break level right now, former Symmetrical Triangle support at 1630/40, and its lowest level since August, before the ECB and the Fed’s QE intervention hopes took hold. Additionally, when considering the move off of the September highs, a measured A-B=C-D (as expressed on the Daily) suggests that a bottom could be in place at these levels as well. Support is there at 1580. Resistance is 1690/95, 1735, 1755, and 1785/1805.”
--- Written by Christopher Vecchio, Currency Analyst
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