Review: The French PMI data offered a nasty surprise and USD increased, but already half an hour later we saw some comfort as the German PMI data offered a positive surprise. The sentiment changed a bit but was still generally negative. PMI data in the US came out at 51.5 against the expected level of 51.5. The sub-index for new orders as well as employment both increased.
Generally there is again negative focus on Europe. The solution to the problems in Greece in respect of finding the last EUR 2bn worth of austerity measures is long in coming, and yesterday the head of the Spanish bank BBVA stated that the Spanish banks need another EUR 70bn-80bn and that the financial system is facing big problems. Despite of this, the outcome of the auctions of Spanish government bonds yesterday was quite decent resulting in reasonable yield levels and bid-to-cover (number of buyers).
Market sentiment: The sentiment is still slightly sour focusing on the macro-economy and risks in Europe and China. We still think that the positive sentiment has merely been put on hold and that the effect of Draghi’s announcement of possible purchases of Southern European government bonds and the Fed’s announcement of QE3 has not yet been fully reflected in the market.
Today’s macro-economic news: Absolutely nothing on the agenda.
The calendar for next week does not offer many important economic indicators. The most important ones will be IFO data from Germany and the Tankan index from Japan. Moreover, it will be interesting to see whether Spain requests EFSF assistance. On 27.09, the 2013 budget will be presented – a possible date for a request for assistance. You may want to read more about Spain here.
Also, the Greek finance minister meets with the Troika on 26.09. At the end of September/beginning of October, the Troika (EU/IMF) will decide whether or not to keep Greece afloat by releasing further funds.
EURUSD (NEUTRAL): We recommend a buy order at 131.85 above the peak on 17.09. If the order is executed, we recommend S/L at 130.45.
The correction to the downside has slowed down temporarily. Next week will not offer much news, and therefore the trend may develop either way. We maintain our expectations of pressure to the upside. A period without news may offer some time to absorb QE3 and Draghi’s statements. If Spain chooses to ask for assistance, EURUSD will also be pushed higher.
The level at 128.29 is the 200-day moving average (MA), and 127.71 is 21 MA. Technically there is strong support at 127.50 - 127.90 (the old bottoms from 10 and 11 September) + 21 MA. As long as 127.50 is not breached at the closing level, the short-term trend is not jeopardized.
To the upside, there is resistance at 130.00 and then at 130.85. The level at 131.75 opens up towards 135.
EURJPY (NEUTRAL): We recommend a buy order at 100.05. S/L at 98.95.
Right now there is a long way to go to the level at 100, but if the recent consolidation turns out to continue, we may fairly quickly see this strong level of support over the next week.
We do, however, expect that the level at about 100 will hold firm. Quantitative easing from Japan, QE3 from the US and lower tail risk on EUR assets are expected to result in increasing risk appetite and hence a flight from safe havens (including JPY).