Review: Fantastic export figures announced in China
China: The export figures announced overnight showed an increase of no less than 14.1% y/y. Particularly Europe and Asia were the driving forces behind this development. The solid increase will support a positive sentiment in today’s market.
The US: Barack Obama has chosen Jack Lew to replace Tim Geithner as treasury secretary. Lew is professionally focused on government budgets whereas Geithner was more oriented to the financial system. We see this as an indication that focus has changed from crisis handling in the financial system to that of budget tightening.
High consensus expectations
Particularly within two areas consensus expectations are high for the 3-month term.
- The global equity market:
Most equity analysts and strategist expect that equities will continue to increase and a few have a target above the old tops from 2007-08.
- Further JPY weakening
Since EURJPY and USDJPY traded above the highly respected Isimoku Cloud (a recognised technical analysis tool), the analysis houses have lined up to issue buy recommendations, particularly for USDJPY.
We are getting concerned about which potential there is, in actual fact, left within the two areas in the 3-month term. It seems to us that it is a signal that the markets are getting exhausted when THAT many analysts are THAT much in agreement that there is still a one-lane road from the current level.
Spain: The Spanish finance minister expects that Spain can independently obtain financing for the year 2013 by issuing new government bonds. Basically this is a healthy sign. On the other hand, it also gives rise to a bit of concern as without a rescue package from the EUR/IMF, we question Spain’s incentive to implement the economic reforms that are so important for the future economic progress.
Market sentiment: ECB meeting ahead
The ECB’s interest-rate meeting may have a great impact on appetite for risk. If Draghi makes strong announcements at the press conference, we are in for a continuation of the positive trend that the market has seen since mid-November.
Today’s most important events:
09:30 SEK: consumer prices and industrial production
10:00 NOK: Consumer prices
13:00 GBP: Interest-rate announcement
13:45 EUR: Interest-rate announcement
EURUSD (BUY): T/P at 134.50. S/L at 128.60.
We recommend that investors BUY EURUSD in the range of 129.60 - 130.80. We think that January may offer good chances of decent gains for risky assets and hence also EURUSD.
Generally we expect a brief weakening of USD until February and then the strengthening trend of USD will be resumed.
Today’s ECB meeting is of great importance for EURUSD in January. We expect that at the press conference Draghi will signal a positive sentiment, which most likely will strengthen EUR.
Resistance and support:
Downside: The downward breach has paved the way for a test of 129.60.
Upside: Resistance at 133.08 and 134.90.
EURJPY (BUY put option): We recommend that investors buy a 3-week EURJPY option, strike 113.75. Price 0.82% (spot reference 115). EURJPY is currently in a consolidation phase – we have seen this a couple of times in recent months and each time the breach has been to the upside.
We think, however, that this time the probability of a breach to the downside is much stronger.
Technical indicators have been ‘stretched’ a lot, and several (e.g. the so-called Moving Average Convergence Divergence (MACD)) indicate a turnaround. RSI (see chart) shows divergence.
For the short term, the potential offered by EURJPY is much stronger to the downside than the upside. Even if we assess a 50/50 probability of a breach upwards/downwards, the risk/reward clearly favours buying JPY. The option approach is preferable as EURJPY is much volatile (= high risk of reaching stop-loss).
The Bank of Japan has scheduled an interest-rate meeting again on 22 January. The expectations of this meeting are extremely high, and the Bank of Japan must not disappoint. We find it quite likely, however, that it will in actual fact disappoint. No new central bank governor has been appointed, and the Bank of Japan has so far been hesitant to share the new Prime Minister Shinzo Abe’s views of the monetary policy.
EURCHF (BUY): Take-Profit 121.50. Stop-Loss 120.60.
The cross rate seems to have dug itself in in the range of 120.80-120.95. A breach from this range with a subsequent close outside the range would be a good indication of further movement in the direction of the breach.
The recommendation was originally targeting clients with CHF-denominated loans who would like to close these loans.
technical view: Support: 120.82 and 120.62. Resistance:120.95-121.12 and 121.69.