With three of the world’s largest central banks reassuring the markets that accumulation of risk is secure, it seems like clear sailing ahead for high beta currencies. In no uncertain terms last week the Fed and ECB indicated that they would support growth, stated that inflation is a far distinct concern and it was too early to signal any exit from their ultra loose monetary policy. While over the weekend the G20 policymakers put their negligible stamp of approval on this policy direction (while not commenting on serious imbalance caused by currency manipulation). General measures of risk aversion are currently at levels not seen since pre Lehman’s, while indirect barometers of global growth such as the Baltic dry index continue to push higher. After a short lived test of the US economic data / risk appetite relationship on Friday, markets have been moving lock –n-step. Yesterday, Wall Street was broadly higher with the S&P up 2.22% (Dow Jones making a new 2009 high), while today's Asia regional indexes are higher across the board. DXY continues to push toward the 75.00 handle as the lack of policy shift from the central banks has given USD carry traders the green light. The EURUSD climbed to 1.5020 before falling back slightly. The JPY was also under significant pressure against everything but the USD. The AUDJPY climbed to 83.88, while the GBPJPY traded up to 151.68. Despite the gains in risk correlated trade, BRC retail sales printed up 3.8% m/m in October and RICS House Prices were up 34% vs. 28% exp., the Sterling has struggled in comparison to other currencies. First was the news that Kraft’s latest bid for Cadbury Plc contained no increase as some expected and was flatly rejected. Early this morning, the UK and the GBP took a big hit when Fitch’s David Riley was quoted as saying the UK is most at risk of losing (of the four large AAA sovereign debt issuers US, Germany, UK, France, ) its AAA sovereign status due to the fact it will need “the largest budget adjustment.” The GBPUSD collapsed to 1.6603 from 1.6775. However, we expect the comments to fade as markets continue to embrace risk correlated trades. With a light economic calendar today, the market will be watching the German ZEW release. After yesterday's strong German IPC number and weak French numbers today, this historically unreliable indicator will be the only near term guidance participants will have to the state of the Eurozone economy.
Today's Key Issues (time in GMT):
08:30 SEK Industrial production, % m/m Sep 0.5 exp
09:30 GBP Trade balance, £ bn Sep -6.1 exp, -6.2 prior
10:00 EUR Germany: ZEW economic expectations index Nov 55.0 exp, 56.0 prior
14:15 USD Atlanta Fed President Lockhart (FOMC voter) speaks
15:00 USD San Francisco Fed President Yellen (FOMC voter) speaks
15:45 EUR ECB Executive Board member Gonzalez-Paramo speaks
16:15 USD Boston Fed President Rosengren (FOMC non-voter) speaks
16:30 NOK Norges Bank Deputy Governor Qvigstad speaks
23:50 JPY Core machinery orders, % m/m Sep 4.1 exp, 0.5 prior
The Risk Today:
EurUsd The breakout of the short term downtrend at 1.4930 / 50 and subsequent strong rally at the start of the mondays Asian session above those levels means the medium term uptrend looks to be back in play. The last hope for EURUSD bears that this move is merely a retracement of the 1.5060-1.4625 move seems to be under threat as the pair teeters around/above 1.4970 (which represents 78.6% fibonacci retracement). The pair should find support around 1.4915, and thereafter 1.4815, whilst resistance lies above at 1.5063 (26 Oct high), and 1.5100, with stops behind.
GbpUsd Comments from Fitch offset positive UK data and temporally halted the sterling rise. Focus now returns to its 1.7041 year-to-date high, with 1.6740 now providing decent resistance. RSI still not quite at overbought levels (60 last) so bullish momentum has further room to go.
UsdJpy USDJPY still consolidating in its symmetrical triangle; one of the least exciting pairs in this current move. So far pair has bottomed at 89.68 today, but risk appetite and subsequent demand for JPY-crosses rejected a further move to the downside. Expect support to come in again around 89.60 levels and 89.17 below there, whilst first resistance waits at 90.75.
UsdChf USD slide has prompted USDCHF to breach near-term uptrend and downside support in 1.0132 region, and now looks to target 1.0037 ahead of parity. Resistance above comes in at 1.0200 and thereafter 1.0290.
Resistance and Support
|S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot|