Friday appeared to be a roller coaster rise as sentiment rose and fell according to the various news items that hit the headlines.
The bad news began with the story that Anglo Irish Bank is being nationalized. This was later followed by optimism of an announcement to bail out Bank of America and the release of the second tranche of TARP funds. However, Bank of America and Citigroup results sent sentiment tumbling again after large than expected losses were announced. There was a huge sell of shares in both Barclays (-25%) and RBS (-13%) aided by rumors of further write downs and the lifting of the short selling ban.
The beginning of the week in Asia saw a wave of optimism hit the markets despite today's Martin Luther King Day holiday in US. How long this will last and, more to the point, if it is at all justified, remains to be seen but, nevertheless, risk aversion has reduced a little. This despite some undercurrents of concern in the press over the weekend with one report saying that it is possible Ireland could withdraw from the Euro while other reports predict a huge write down from RBS.
Swiss retail sales fell 1.4% on the year in real terms in November, versus rising 2.9% on the year in October. Swiss retail sales are notoriously volatile and the 3m y/y trend rate slipped to 2.6% from 3.1%. When adjusted for the number of shopping days, sales were rose 2.5% y/y however, after a 2.9% increase in October but the 3m y/y rate also slipped to 2.6%, versus 3.1% in October. Overall, data suggest that the retail sector, although having held up relatively well this year, is displaying a downward trend. We are likely to see weaker retail sales figures ahead as consumer demand falters on the back of the credit crunch and weaker confidence.
Although week ahead should be relatively tame in terms of scheduled economic event risk, recent experience has shown that the US Dollar may nonetheless remain volatile on shifts in financial sentiment. Today's focus will be on central bank speakers with President Trichet giving headlines at lunch debate in Paris (10:50 GMT) and Eurogroup of Euro area finance ministers meeting in Brussels (16:00 GMT)
Obama's inauguration in the US tomorrow will bring enormous amount of press and massive amount of people in Washington. Main focus will be on US economy credit needs and solutions provided accordingly.
The Risk Today:
EurUsd EUR/USD edges higher to 1.3385 but lacks follow through momentum and retreats. While further recovery cannot be ruled out, short term outlook remains bearish as long as 1.3796 resistance holds. As discussed before, consolidation from 1.2329 has possibly completed at 1.4719 already. Below 1.3183 minor support will flip intraday bias back to the downside. Break of 1.3026 will indicate that fall from 1.4719 has resumed for retesting 1.2329 low.
GbpUsd GBP/USD's recovery was limited below 1.4980 and outlook remains unchanged. Recovery from 1.4469 is tentatively treated as completed at 1.4980. Further downside is in favor. As discussed before, we're still favoring the case that consolidation from 1.4557 has either completed at 1.5722 or 1.5372. Below 1.4469 will bring fall to 1.4350 and break there will confirm that medium term down trend has resumed. However, above 1.4980 will argue that more sideway trading could be seen in mentioned range of 1.4350/5722 before resuming medium term down trend.
UsdJpy USD/JPY edges higher to 91.29 earlier today but retreated since then. While further upside cannot be ruled out, recovery from 88.47 is still expected to be limited by 91.65 cluster resistance (50% retracement of 94.61 to 88.47 at 91.54) and bring fall resumption. Below 90.07 minor support will flip intraday bias back to the downside for 88.47 first. As discussed before, corrective rise from 87.13 should have completed with three waves up to 94.61. Below 88.47 will bring retest of 87.13. Break will confirm medium term down trend resumption.
UsdChf No change in USD/CHF's outlook. Further rise is still in favor as long as 1.1093 minor support holds. Rebound from 1.0366 might extend to 61.8% retracement of 1.2296 to 1.0366 at 1.1559. Though, upside is expected to be limited there to bring resumption of whole fall from 1.2296. Below 1.1093 will flip intraday bias back to the downside. Further break of 1.0864 will indicate that rebound from 1.0366 has completed and will bring retest of this low.