HIGHLIGHTS

  • Bond Markets:
    • US Treasuries slightly lower ahead of key eco releases
    • European bonds fall back off the highs
  • Currencies: USD/JPY down on strong japanese GDP
  • News: US PPI & retail sales and EMU GDP & ZEW focal points

CURRENCIES: USD/JPY down on strong japanese GDP

Regarding Monday’s eco data, we can be very brief. There was nothing to drive EUR/USD. Some attention did go to central bank speak during the day. Gonzales- Paramo was seen issuing ‘hawkish’ comments (see European bonds part for details), but these didn’t seem to have an impact on FX.

There was also some slight profit taking seen on the latest upmove in this pair, which had brought it at the start of this week in the high 1.28’s, stopping just ahead of important recent resistances. The data later on this week will be decisive though for further price action, so we wouldn’t make too much of this. Rather this could be a dip used to sell USD into strength.

That could depend on the outcome of today’s data, with the calendar heating up with the US PPI and retail sales scheduled today. Also the EMU GDP and the German ZEW could have some impact earlier on. Attention will go also to Fed speakers today with Poole, Minehan and Yellen scheduled late in the session. If EUR/USD gets lifted, one should be looking at important resistances at the previous high (1.2939) and maybe even (later in the week?) the year high at 1.2979. The agenda this week is well enough packed to give fresh directional guidance to the markets, with also NY Fed survey, Fed Minutes, CPI, TIC data and Philly Fed later on in the week…

Technically, the dollar bullish sentiment was abolished, as the pair moved back above the 1.2630-40 zone. Longer term this is still a broad sideways trading pattern that this pair is laying down though with tops at the 1.29+ zone.

Support is seen at 1.2804/.02 (downtrendline / today low ?), at 1.2773 (daily envelope), at 1.2743 (weekly STMA) and at 1.2725 (break-up) and at 1.2708 (Broken daily downtrend line).

Resistance is seen at 1.2847/.58 (breakdown / daily envelope), at 1.2898/1.2900 (daily Bollinger top / last week high) and at 1.2920/.39 (channel top / Aug 21 high). EUR/GBP ticked slightly up on Monday, moving from the 0.6720 zone to the 0.6740 zone.

The UK PPI release was mixed. The (output) PPI fell 0.2% M/M, which was slightly below consensus (-0.1% M/M), but core output PPI rose by 0.3% M/M (exp. +0.2% M/M). One day ahead of the UK CPI this couldn’t inspire much. Looking ahead, the sterling should have a difficult time pushing through below EUR/GBP 0.67. That seems a hurdle too far short-term, as we view the sterling as overvalued short-term. This translates into a buy-euro-on-dip sentiment. To give the euro a better outlook, a sustained move above the 0.6734-neckline of a double bottom would be needed first. That is the signal needed to upgrade the outlook for the single currency the market is currently looking for (as this area is tested as we speak).

For now, the upmove in EUR/USD hasn’t been able to inspire much euro buying versus the sterling.

Still, for these two pairs to go separate, and opposite, ways at this stage looks very difficult. As we keep a buy-euro-ondip sentiment in EUR/USD, this view should also be kept in EUR/GBP to keep the views in line and consistent. Besides the UK CPI, there will be a lot of attention for EMU GDP numbers, after the disappointment from France last Friday. The euro might see some pressure if these surprise to the downside.

Still, Gonzales-Paramo could have taken the sting out of it a little bit yesterday as he said that ‘we have said in the past that there would be certain volatility between quarters, but our base scenario continues to be growth around potential. This is looking at 2007 too.’

Up until now, the EUR/GBP pair was well captured in the long-standing 0.70 to 0.67 area. This downward support zone was pressured recently as last week the pair set new-year lows. However, a sustained break apparently isn’t that easy.

Support stands at 0.6722 (daily envelope / STMA), at 0.6716/.13 (yesterday low / ST break-up daily) and at 0.6705 (daily Bollinger midline / MTMA)7 Nov highs) ahead of 0.6695 (7 Nov low).

Resistance comes in at 0.6738/.46 (daily Bollinger top / yesterday high), at 0.6752 (23% retracement) and at 0.6769/.76 (Oct 6 high / daily Starc top).

USD/JPY rose slightly yesterday on some profit taking on the recent downmove in this pair. This brought the pair back up at the 118 zone.

This morning, though the USD took a tumble, or rather the yen got a boost, as the Japanese GDP number exceeded expectations. Growth came in at 0.5% Q/Q and 2% annualized. This was double market expectations, driven by strong capital spending and external demand. USD/JPY fell from the 118 zone to the mid 117.50 area. Our feeling stays in place that the USD has gone too far to the upside recently. These tops seem to high in the near term, so this should lead to some selling USD into strength.

There have been doubts on the Japanese data lately but such a strong GDP can take these doubts away for a while at least. That is why we believe that this market, still positioned net short yen, should allow for some more downward correction (in USD/JPY) in the near term. On the downside the 116.57-reaction low remains the obvious important support for the USD. Look for a test this week, US data permitting as an avalanche of US data hits the FX slopes this week. Today, US PPI and retail sales will be the drivers for the USD. The market will look closely at the sales-ex autos for guidance intraday we believe.

Recently, the topside in USD/JPY had become too difficult, as the test of the year highs was rejected. However, the downward correction that was developing afterwards also was aborted after the US payrolls report. The pair is in a sideways mode for now.

Support is seen at 117.55 (today low), at 117.15/.11 (last week low / yesterday low) and at 116.95/.63 (previous MT reaction low / daily Bollinger bottom).

Resistance is seen at 117.94/118.03 (uptrendline off 113.31 / breakdown hourly), at 118.29 (broken LTMA + yesterday high) and at 118.59/. (last week high).