Forex News and Events:
Markets were quiet in an uneventful Asian session, with USD quietly gaining and local equity markets inching higher following a stronger Wall Street session. The struggle continues in the FX markets between USD bears who point to a massive Fed balance sheet and the specter of hyper inflation, while the USD bulls are comforted by a Fed preparing to ditch its ultra loose monetary policy, finding support from concerns over sovereign and quasi-sovereign debt. AUDUSD choppy trading reflected the lack of drivers; the pair opened at 0.8810 and instantly came under selling pressure, pushing the pair down to 0.8765 as leveraged names and US CTAs cleared out of risky trades. However, there was a stark reversal, as European traders came into the office trading the pair back to 0.8823. The see-saw patterns were echoed across FX, and pairs have begun to settle into tight holiday ranges. In Japan, the Tankan survey was mixed with improvement in manufacturing industry sentiment, but deterioration in non-manufacturing confidence (mfg index -27, non-mfg -39, prior Nov -28, -35 reading). The sharp shift in JPY strength and jump in exports has clearly given manufactures a positive feeling, but the end of fiscal support has hurt sentiment among non-manufacturing businesses. There is a growing consensus among participants, with us included, that the trade of 2010 will be to short the JPY, as a number of sentiment indices point to another round of Japanese deceleration. The USDJPY climbed to 91.48, taking out stops above the 91.25/30 resistance, including a Fibo retracement level (38.2% of this year's high-low). Despite proactive, public finance adjustments and rhetoric from Greek policy makers, Moody's became the 3rd rating agency to downgrade Greece, cutting debt ratings from A1 to A2. While the actual reaction was muted (since the downgrade was expected), worries over EU members' credit will continue to weigh on risk appetite and support USD buying. Another light economic calendar day brings UK Q3 GDP and US Q3 GDP. The third estimate of UK Q3 GDP is expected to see an upward revision from -0.3% QoQ to -0.1% QoQ. The current account is also expected to show an increase from -GBP11.4bn to -GBP8.2bn, which was helped by the recent sterling weakness. And in the US, most expect the third estimate of GDP to stay at 2.8%. However, there is some downside risk over moving to 2.7%. On a side note, comments from Chicago Fed President Evans sounded slightly hawkish as he interpreted extended period to mean to me that seems like about three to four meetings. - a comment that markets extrapolated as USD bullish. In addition Evans said the recent movements in the USD are unlikely to shift the FOMCs inflation picture, though they continue to monitor USD movements.
Today's Key Issues (time in GMT):
09:30 GBP Final GDP Q3 -0.1 (-4.9) exp, -0.3 (-5.1) P
13:30 USD GDP, % q/q saar (y/y) Q3 2.7 (-2.5) exp, 2.8 (-2.5) 2nd
13:30 USD GDP price index, % q/q saar (y/y) Q3 3rd 0.5 (0.6) exp, 0.5 (0.6) 2nd
15:00 USD Existing home sales, mn Nov 6.25 exp, 6.1 prior
21:45 NZD Real GDP % q/q Q3 0.3 exp, 0.1 prior
The Risk Today:
EurUsd For another very light data calendar we are anticipating a period of consolidation for EURUSD, but the range between the between the key technical levels is quite wide given the recent moves. Our bias is for a continuation of the bearish correction but would like to see a revisit of 1.4350 for ideal short-entry level, with prior support at 1.4515 now acting as decent resistance. Any break above there would face a major hurdle rallying higher at 1.4685. On the downside the 1.4261 Friday lows form the first support, with the 200 day moving average providing some cushion below there at 1.4187.
GbpUsd The pair in now trading below the critical 1.6150 lower bound of its bearish channel, giving sterling bears reason to target a move to 1.6000-40. With the thin liquidity surrounding holiday season, we do however remain cautious that a break above 1.6250 would send us firmly back into the channel and next resistance would not come in until 1.6400. A soft UK GDP will extend weakness to 1.0610 then 1.5930.
UsdJpy The uptrend that has been in play since 27th Nov (where we bottomed at 84.81) remains intact, and Friday's rally took us to highs of 90.91 before the 9 month downtrend came into play and slowed any further gains. The 4-week uptrend coupled with major resistance at 91.00 is now creating a very clear ascending triangle pattern, and a break to the upside would look to target 97.00 levels. In the meantime however, we expect choppy price action and consolidation to dominate, with buying interest at the trendline support of 89.60 below and decent offers above at 91.00.
UsdChf USDCHF broke its 3 week uptrend line on Friday with the collapse of EURCHF, however we still can't confirm a reversal in trend unless we see a break below 1.0345. We expect consolidation from here with plenty of decent support levels on the downside; 1.0350,1.0240, and 1.0000. Meanwhile on the upside, 1.0508 (Thursday's highs) forms first resistance, with next levels above there at 1.0625, and beyond there the 1.0700 major resistance and 38.2% correction of the move from 1.1970 down to 0.9918.
Resistance and Support:
|S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot|