US figures provided something of a pleasant surprise yesterday as the ADP and ISM numbers both beat expectations. This sent equities higher in the US while JPY crosses made gains. However, this risk appetite soon dissipated after doubts began to emerge about President Obama�s banking strategy (Bank of America shares were down 10%) and poor earnings announcements also weighed heavily. Traders� collective attention now switches to the policy decisions from the Bank of England and the European Central Bank later today followed by the US employment report tomorrow. UK rates are widely forecast to be cut by 50bps to 1.0% from the current 1.5% while the ECB is expected to leave rates unchanged as ECB President Trichet said that the next important meeting in March along with the updated forecasts on the extent of the slide in Eurozone�s economy. As usual the main focus will be on Trichet�s comments in the press conference taking place 45 minutes after the rate decision release.
News and Events:
Yesterday was a choppy day in FX Market. EUR/USD fell sharply following weak PMI data and poor retail sales. Eastern European names were large sellers as the Rouble approached the bottom of the trading band. Later, the pressure intensified as Fitch downgraded Russia to BBB and kept them on negative watch. Sovereign bids kept the pair from falling through the 1.2800 level.
Early in Europe there was a large amount of AUD/JPY sold � AUD 5 billion was mentioned � which saw AUD/USD fall by 150 points.
US figures provided something of a pleasant surprise yesterday as the ADP and ISM numbers both beat expectations. This sent equities higher in the US while JPY crosses made gains.
However, this risk appetite soon dissipated after doubts began to emerge about President Obama�s banking strategy (Bank of America shares were down 10%) and poor earnings announcements also weighed heavily.
Trading during the Far East hours was lackluster in the extreme. All currency pairs were confined to narrow ranges and there were no real features to speak of.
USD/JPY and JPY crosses held steady despite comments from the BoJ�s Mizuno who warned about the serious problems in the Japanese economy and said that unusual steps may be needed to combat the effects of the down turn.
Traders� collective attention now switches to the policy decisions from the Bank of England and the European Central Bank later today followed by the US employment report tomorrow.
UK rates are widely forecast to be cut by 50bps to 1.0% from the current 1.5% while the ECB is expected to leave rates unchanged as ECB President Trichet said that the next important meeting in March along with the updated forecasts on the extent of the slide in Eurozone�s economy. As usual the main focus will be on Trichet�s comments in the press conference taking place 45 minutes after the rate decision release.
US’ initial jobless probably rose to 590K last week with 4-week average coming at 573 K. The labor market continued to deteriorate and seasonal factors were not an important factor for last week’s figure. Preliminary readings for labor cost and productivity in the fourth quarter are anticipated to have risen by 3% and 0.9%, respectively.
Today’s Key Issues (time in GMT):
11:00 EUR German Factory Orders s.a. (MoM) (DEC) -2.0% vs. -6.0%
11:00 EUR German Factory Orders n.s.a. (YoY) (DEC) -24.5% vs. -27.2%
12:00 GBP Bank of England Rate Decision 1.00% vs. 1.50%
12:45 EUR European Central Bank Rate Decision 2.00% vs. 2.00%
13:30 CAD Building Permits (MoM) (DEC) -5.0% vs. -11.8%
13:30 USD Non-Farm Productivity (4Q) 1.0% vs. 1.3%
13:30 USD Unit Labor Costs (4Q) 3.0% vs. 2.8%
13:30 USD Initial Jobless Claims (JAN 31) 580K vs. 588K
13:30 USD Continuing Claims (JAN 24) 4795K vs. 4776K
13:30 USD Fed’s Plosser Speaks at Food, Water Conference in Philadelphia
15:00 CAD Ivey Purchasing Managers Index (JAN) 39.0 vs. 39.1
15:00 USD Factory Orders (DEC) -3.1% -4.6%
The Risk Today:
EurUsd: Below 1.2798 minor support will suggest that recent decline from 1.4719 is resuming for retest of 1.2329 low. Though downside might be contained there initially and bring some consolidations first. At this point, while another rise cannot be ruled out, upside should be limited below 1.3329 resistance and bring fall resumption.
GbpUsd: GBP/USD edges higher to 1.4577 but lacks follow through buying yet. Nevertheless, intraday bias remains mildly on the upside as long as 1.4324 minor support holds. As discussed before, a medium term bottom might be in place at 1.3053 after failing to sustain below key long term support of 1.3680. Further rally is now in favor towards 1.5722 resistance next.
UsdJpy: USD/JPY continues to engage in choppy sideway trading below 90.74 without committing to either direction. As mentioned before, decline from 94.61 to 87.12 could either be just a falling leg of the consolidation that started at 87.13 or resumption of down trend. Further rise is mildly in favor as long as 88.43 minor support holds. Above 90.74 will indicate that the third leg of the consolidation has started for a test of 94.61.
UsdChf: USD/CHF continues to consolidation in established range of 1.1313 and 1.1714 today and such development is consistent with the view that rise from 1.0366 is still in progress. Above 1.1714 will confirm rally resumption and target a retest of 1.2248/96 resistance zone. However, note that break of 1.1313 support will confirm that rebound from 1.0366 has completed and will bring deeper decline towards 1.0864 cluster support.
Resistance and Support:
By Loic Bondiguel - ACM Advanced Currency Markets, Geneva, Switzerland