Participants are viewing this week as the potential turning point in the greenbacks fate. Equity markets are all lower with the DAX down -3.5% and Dow futures pointing to a weak opening as risk aversion runs high. A chances of a coordinated fiscal response (to re-invigorate the global economy) at the G20 meeting seems very slim due to the massive ideological divide between the EU and US, UK and Australia. We see little hope that any of this week’s events will provide the stability that participants are searching for and expect the USD will continue to see broad based gains.
[B]News and Events:
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This is shaping up to be a significant week for the currency markets. The USD sell-off, prompted by the FOMC preemptive move to initiate Quantitative Easing, has now been nearly reversed. The rapid change in the sentiment around the dollar has participants viewing this week as the potential turning point in the greenbacks fate. It was three unique events which ended the markets growing optimism and placed the risk aversion trade squarely back on the table. First came on Friday with BoE MPC members Dale�s comments which highlighted further downside risk to UK economic forecast and the potential of additional quantitative easing. Shortly after, it was comments from German Finance Minister Steinbr�ck who caution that the EUR would be threatened if the stability pact was not upheld. He also stated that in the “too much debt” in European countries would hurt confidence in markets. And the final straw was over the weekend, with comments from the White House that GM and Chrysler best option might be bankruptcy. Currently, equity markets are all lower with the DAX down -3.5% and Dow futures pointing to a weak opening. The corresponding sell-off in commodities has hurt the commodity Bloc with AUDUSD down 3.78% in two days. Markets will be focused on four major events this week the G20 meeting in London , Japan’s Q1 Tankan report, the ECB rate announcement and press conference (see central bank preview) and Non-Farm Payrolls. Taken in a whole, we expect risk appetite to stay fragile which should benefit the USD and the JPY. Chatter around the G20 meeting (Thursday and Friday) has already hit new highs. The market will be focused on whether any further stimulus packages will be announced (similar to China’s announcement last meeting), how best to regulate financial markets and tighten up on tax havens. A chances of a coordinated fiscal response (to re-invigorate the global economy) seems very slim due to the massive ideological divide between the EU and US, UK and Australia . Recent rhetoric from EU officials, such as German Chancellor Merkel has made the region’s negative stance on fiscal stimulus clear, arguing the focus of this G20 meeting should be on regulation reform over new fiscal stimulus. Perhaps the area where a strong message might be probably will be the issue of additional IMF funding. The US, Japan and EU have already offered additional funding, yet despite China support, China has yet to offer direct funding (but rather opting for swap agreements). The DXY found support at 82.63 (mar 19th low) and has been gaining strength since. We see little hope that any of this week’s events will provide the stability that participants are searching for and expect the USD will continue to see broad based gains.
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Today’s Key Issues (time in GMT):[/B]
08:30 GPB BoE Mortgage Approvals (Feb) 31 prior
08:30 GBP Consumer Credit (Feb) 0.4 prior
08:30 GBP M4 Money Supply (Feb Final)
09:00 EUR Economic Sentiment (Mar) 65.4 exp, 65.4 prior
09:00 EUR Consumer Confidence (Mar) -34 exp, -33 prior
09:00 EUR Industrial Confidence (Mar) -36 exp, -6 prior
23:01 GBP GfK Consumer Confidence Survey (Mar
[B]The Risk Today: [/B]
[B]EurUsd:[/B] Bullish intermission subsides and weaker Euro resumes as continued pressure in European economies weighs on the single currency. Broad bearish trend regains strength as we fail to break 1.3493 � 1.3681 range. Declining neckline breaks lower, initial resistance sits at 1.3341. Focus is lower, initial support at 1.3088 setting the tone for a mid-term target at 1.2457.
[B]GbpUsd:[/B] Head and shoulder formation confirms and signals a change in immediate trend, regaining the broader scheme of things which points to sterling weakness. Initial support stands at 1.4163, with sights on 1.3845. Serious retracement would bring on resistance at 1.4361, then 1.4500.
[B]UsdJpy:[/B] Return of risk aversion trade only confirms our past weeks analysis that a firm call on risk appetite was premature. Yen rallies against the dollar as dollar rallies against other currencies � repatriation style Yen dynamic returning � inversely correlated to dollar moves. Initial retracement resistance at 96.51 then 96.86 (23.60% and 38.20% fib levels respectively) with a cap at 98.14 in the short term. On the downside one should be weary of bears extending too far ahead of the G20. Initial support at recent low of 95.96.
[B]UsdChf:[/B] We are testing the 50% Fibonacci retracement level at time of writing from 1.1829 � 1.1171 move. Our strong move above the 1.1326 upper limit of last week�s range has initial limit at 1.1500. Further dollar strength will see us head for 1.1684 via 1.1577.
[B]Resistance and Support:
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By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland