HIGHLIGHTS

  • Bond Markets:
  • US Treasuries hit by modest profit taking as highs cannot be broken
  • European bonds retreat slightly from the highs
  • Currencies: USD tries to fight back
  • News: Busy calendar in major countries

CURRENCIES: USD tries to fight back

The EUR/USD pair dipped slightly yesterday, as no new highs could be set. The decline form the 1.3180 zone to the 1.3150 zone is modest though.

The whole French government seemed to be on the barricades yesterday with comments from De Villepin, who said that the recent euro rise was weighing on competitiveness, Finance Minister Breton, who called again for ‘collective vigilance’ and Trade Minister Lagarde. All these comments though didn’t seem to impact the currency directly. Still, no new highs were set in the pair and some profit taking slowly developed, already ahead of US data.

Other key EU policy makers such as Monetary Affairs commissioner Almunia yesterday in a French (!) newspaper said the increase of the euro over the past six weeks were “not of the ordinary’.

The US GDP release was somewhat stronger than expected at 2.2% annualized. This gave some very slight dollar strengthening at first, but the dollar couldn’t push through.

In the evening Trichet had a speech and at first he said he didn’t want to comment on FX. Being pushed by journalist questions he simply referred to the G7 statement and reiterated that stance ‘excess volatility undesirable for economic growth’. This also didn’t seem to impact FX at the time.

All in all, the dollar rebound was very modest after the recent leap higher and no support areas are broken. This still leaves the scope of trying for higher ground and a buy-euro-on-dip environment in this pair.

Today, a lot of attention will go to a battalion of ECB speakers. Will they have to say anything on the euro?

EUR/USD (2 days): USD trying to fight back, but not yet convincing

Technically, a dollar negative sentiment was installed with the move outside the sideways range and above 1.2979.

Support is seen at 1.3149/.43 (STMA / today low), at 1.3131 (yesterday low) and at 1.3114/1.3085 (ST low / week low)

Resistance is seen at 1.3209 (daily Bollinger top), at 1.3218 (new year high) and at 1.3261/.64 (target triangle break / daily Starc top).

A big day for the UK today: the BoE members will testify at the Treasury Committee hearing on the November inflation report. This could give some major headlines for EUR/GBP. Also the ECB speakers will be watched today, with Liikanen, Ordonez, Gonzales-Paramo, Tumpell-Gugerell, Wellink and Liebscher taking the stand! There is room for surprises we would say on that front…

Yesterday, the news of the day was the Iberdrola takeover of Scottish Power. It gave an intraday dip, with the EUR/GBP pair moving from the 0.6760 zone to the 0.6740 zone, but just as we thought the bid had been already well anticipated over the past days, so now some profit taking could develop and in the end the pair was marginally unchanged, moving back up to the 0.6760 area.

We had a buy-euro-on-dip scenario in place in case of dips below 0.6750, so we now are positioned euro long and look for further upside in this pair. The EUR/GBP pair has stayed well behind the EUR/USD pair.

Of course, the latter was mostly moved by the USD weakness, but we do feel some euro strength is in order too as the eco data are solid (this morning leaked German jobless data showed a much larger –100K decline in unemployed) and the ECB is not willing to stop euro strength at this stage.

Also, the run-up to next week’s rate hike may bring the to be expected rate hike more in focus, while we do not see the ECB already affected in its outlook by the recent euro rise, as ECB’s Weber yesterday said ‘the euro is only one variable among others to consider’.

This morning, the UK nationwide house prices rose 1.4% M/M and this gave at +9.6% Y/Y the highest rate since Feb ’05.

EUR/GBP (30 days): time to move further up?

Recently, the EUR/GBP pair was well captured in the narrow 0.67-to-0.68 range. A break above the latter would signal a return to the longer standing 0.67-to-0.70 ranges.

Support stands at 0.6748/.43 (ST breakup / daily envelope), at 0.6735/.34 (yesterday low / neckline double bottom) and at 0.6713 (break-up Nov 8).

Resistance comes in at 0.6764 (yesterday high), at 0.6770/.73 (daily envelope / ST high hourly) and at 0.6786/.94 (week high / high 29 Sep).

USD/JPY tried to move lower yesterday morning, but the dollar was seen fighting back across the board yesterday. The pair came back up to the 116+ area.

This morning, the USD even tried to go for a re-test of the neckline of a double top at 116.57, but was narrowly blocked off. This is in principal a good sign for the yen.

The yen this morning could also benefit from some good eco news, with the stabilized Reuters Tankan PMI on manufacturing (not to be confused with the BoJ Tankan report, which is due Dec 15!).

There was another major event in Japan this morning, with BoJ break down of its FX reserves for the first time ever! Apparently the reserves consist of 65% USD, some 30% EUR and some 5% GBP. Japan is the second biggest reserve holder after China. The PBOC is believed to be holding up to 70% in dollar denominated assets by the way. That’s why if diversification ever gets on the way, this can really hurt the dollar.

BoJ’s Noda spoke a bit hawkish this morning, as he said that the bank can raise rates even if CPI stays to current lows levels, but he then also reiterated the point of view of having no idea on timing. It didn’t seem to have an impact.

Over the previous days, we attached some importance to the fall of USD/JPY below 116.57, the neckline of a double top. Now we amend this to say that even a move back above could be only a false break and should not make us panic on such a potential upmove, as long as the pair doesn’t go above 117.11 (see technicals below). As long as we’re below that level, we stick to the bias of selling USD into strength in this pair.

USD into strength in this pair. USD/JPY (30 days) continued sell- USD-into-strength sentiment

USD/JPY slipped recently from the year highs, falling below the neckline of a double top at 116.50. This installs a ST dollar negative spin.

Support is seen at 116.06/115.95 (today low / daily envelope), at 115.62/.56 (Bollinger bottom / yesterday low) and at 115.37 (week low).

Resistance is seen at 116.55/.57 (today high / neckline double top), at 116.80 (daily envelope) and at 116.97/117.11 (MT MA / ST breakdown).