Forex: Aussie, Kiwi, Loonie Pressured by Chinese Data; EURUSD Steady
ASIA/EUROPE FOREX NEWS WRAP
Stronger Chinese data did little to boost demand for high beta currencies and risk-correlated assets overnight, with the highly influenced Australian, Canadian, and New Zealand Dollars all softening in the hours after the print. Although the headline 4Q’12 GDP figure came in at +7.9% y/y, slightly higher than the +7.8% y/y consensus forecast, it remains substantially lower than the +9.8% y/y growth since in 4Q’10, representing a major pullback in growth the past several years. While this headline figure was slightly higher than anticipated, a deeper look into the figures shows that government spending is propping up growth, raising into question the sustainability of output going forward – hence weakness in the commodity currencies.
Elsewhere, the Euro is slightly weaker on the day as growth concerns have come back into the picture amid soft Italian industrial sector data for November, which showed the second largest contraction of 2012 in Industrial Sales at -5.4% y/y. On a related note, the EURCHF has pulled back after breaching the 1.2500 level, its highest since the Swiss National Bank implemented the floor on September 6, 2012. With the European Central Banks OMTs serving as a backstop to Italian and Spanish yields, and the crisis at a seemingly high point in sentiment, the EURCHF could perhaps be the best true indicator for regional stresses at present time. Another floor raise isn’t out of the question either; 1.2500 seems reasonable.
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 1.373% (+0.7-bps) while the Spanish 2-year note yield has increased to 2.497% (+2.1-bps). On the contrary, the Italian 10-year note yield has decreased to 4.163% (-2.5-bps) while the Spanish 10-year note yield has decreased to 5.086% (-1.6-bps); higher yields imply lower prices.
RELATIVE PERFORMANCE (versus USD): 11:35 GMT
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TECHNICAL ANALYSIS OUTLOOK
EURUSD: No change: “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: The pair has broken below ascending TL support off of the July and November lows at 1.6000. A weekly close below this level could accelerate losses through 1.5900/05 (200-DMA) towards the most recent swing low, at 1.5820/25 set in mid-November. Support is 1.5900/05 and 1.5825. Resistance comes in at 1.6000/10, 1.6070/75 (50-EMA), 1.6180, and 1.6300/10 (post-QE3 announcement high in mid-September).
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).” It should be added that a weekly close below 1.0530 could signal a deeper retracement towards 1.0350/400.
S&P 500: Earlier this week I said: “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…Bull Flag is potentially forming on lower timeframes (1H, 4H).” With these levels to the upside breaking, a move above the September highs points to resistance at the 161.8% Fibonacci extension at 1492, 1500 and 1520/25 (December 2007 high). Support comes in at 1470/75, 1450/55, 1425, and 1400.
GOLD: The past few weeks I’ve maintained: "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 [1630/40].” The rebound has ensued, with the alternative safe haven rallying up to 1690 today. A daily close above 1700 points towards 1722/25 and 1755. Support is 1675 (20-EMA) and 1640/45.
--- Written by Christopher Vecchio, Currency Analyst
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