Review: As stated yesterday, this week will only offer a few events – as was the case yesterday. The figures released in the UK disappointed. Industrial production fell by more than expected, and the trade balance figures were rather miserable. This is a clear signal that the development in the UK has not turned for the better despite a period after the Olympic Games where the economic indicators offered positive surprises.
Market sentiment: Unchanged market sentiment = continuing underlying negative sentiment benefitting safe havens (USD, JPY and GBP relative to EUR). Generally, emerging-market currencies are weakening, yet a few (e.g. PLN and TRY) are trading at stable levels.
Yesterday SEK came under a bit of pressure (only a tad) despite the flight to safe havens.
SEK still correlates very closely to the equity market, and the equity market is very high relative to the development of fundamentals. However, at Jyske Bank we do not expect any strong correlation to the equity market (we foresee further 5% upside for global equities before the end of the year), but if the sentiment really turns around, the equity prices have increased quite a lot on the basis of 'hot air' (= relaxed monetary policy), and we have previously seen that new relaxing monetary policy measures only have a temporary positive effect before reality sets in. We do not expect that 'reality will set in' until sometime in the spring of 2013, but there is definitely a considerable risk. If we see steeply declining equity prices, EURUSD may quickly fall again to the level at 120.
Today’s macro-economic news: Industrial production data will be released in France and Italy, among others, and tonight Feds Beige Book will be published; this gives an overview of the economic development in the Federal Reserve Districts in the US.
Wednesday night will offers some, not quite uninteresting, employment and inflation data from Australia as well as data for 'new loans' in China.
EURUSD (NEUTRAL): We maintain our recommendation of a buy order at 131.85. S/L at 130.45. We consider a buy order at about 128. S/L at 126.90.
There is strong resistance in the range of 131.70-132, which is the top from September as well as the falling, black, dotted trend line. Strong support at 128.24 (200MA). The next very strong level of support will be at 127.05. A breach points down to 120.50.
EURJPY (from Buy to NEUTRAL): The day before yesterday we survived our S/P at 101.15, but yesterday the cross rate breached lower and hit the recommended stop/profit (+1.05%). In actual fact, the breach should be considered a sell signal, but as EURUSD is facing strong levels of support, we do not assess that the situation is sufficiently attractive for selling.
GBPUSD (SELL): Due to the poor economic indicators from the UK (industrial production and trade balance), GBPUSD breached the level at 160. As no major economic indicators are on the agenda, it will be crucial whether the negative sentiment will prevail (we expect so until the end of next week). If we are in for further declines in equity prices, GBPUSD will also fall towards the target area (GBPUSD correlates very strongly (positively) with global equities).
EURTRY (NEUTRAL): Over the past three days, EURTRY has tested the range of 235-236. We had expected 236-40, but according to several momentum indicators it seems that EURTRY is about to have peaked this time around. Risk-tolerant investors will find good risk-reward by selling EURTRY at 234-35, but stop-loss at 237.05 and target at 230-31.
EURSEK(SELL): The technical picture indicates SELL. We recommend SELL with a short-term S/L at 866.05. Today’s industrial production data may be decisive for a successful development. A decline of 0.9% is expected. We still foresee that over the coming 3-6M EURSEK will increase up towards the range of 875-890.