Review: The EU summit did not result in any major headlines – quite as expected.
The politicians have agreed on a joint financial supervisory authority, and from several quarters satisfaction has been expressed about the Greek attempts to have the next loan tranche paid out. Spain has not yet been on the agenda.
Market sentiment: Today marks the 25th anniversary of 'Black Monday'. The US Dow Jones fell by almost 23% on that particular day. We do not think, however, that we shall see a similar development today as so far the EU summit has turned out to be as ‘uneventful’ as we had expected.
The otherwise positive sentiment has to some extent turned around after the poor accounts released by a couple of US IT giants (Microsoft and Google), and this caused in particular EURUSD to fall (EURUSD fell independently of EURJPY, EURGBP and others (i.e. solely USD buys – see today’s chart). The slightly disappointing headlines from the EU summit has the same effect. We do, however, expect that next week will be a continuation of the positive trend, yet the economic indicators will eventually decide the outcome.
Today’s events: Today will not see any economic indicators of importance. The EU summit will end this afternoon with a press conference, but as stated yesterday, it seem that the summit will a bit of a 'flop'. This may be slightly detrimental to the sentiment today.
EURUSD (NEUTRAL): We recommend a buy order at 131.85. S/L at 130.45.
A breach above the top at 131.72 would be the final confirmation that EURUSD continues up towards our 3-month target at 138.
The first important level to the topside has been breached. The next range of resistance will be 131.50-131.72. If we see an increase above this level, we feel convinced that the upside in EURUSD will be a bet until the turn of the year. Support at 130.00 and then 200 MA (128.31).
USDJPY (BUY call option): We recommend buying a 2-week call option, strike 78.95.
Price (12.10.2012) 30 pips (spot ref. 78.45). An alternative would be buying USDJPY in the spot market with S/L at 77.90.
There is pressure to the upside, but strong points of resistance are jeopardising further potential unless we see a continuation of the underlying positive market sentiment.
There are a number of levels of resistance in the range of 79.40-79.82. A breach will open up towards 81-82.
NZDUSD (BUY): We recommend BUY with take-profit at 83.50 and a double stop-loss at 80.95.
Intraday we may see the cross rate fall towards 81.40. This level will be a very attractive level to buy at with a double stop at 80.95. The market sentiment next week will be decisive. We find it very likely that the sentiment will be positive, but the double stop is in place in case we are proven wrong.
EURTRY (NEUTRAL): The outcome of yesterday’s interest-rate meeting was more or less as expected. The central bank lowered the overnight lending rate by 50 bp, but on the other hand it raised the banks' reserve requirements? The latter measure means that the banks’ incentive to use foreign currencies as reserves has fallen.
We expect that TRY will be under pressure over the coming three to six months. There is strong resistance at 236.50 – a breach will open up towards 241-242. The first point of support will be found at 234.25.