Review: Overnight, Chinese export data indicated that China is still on the right track.
Over a longer period of time, it is good news that the Asian countries account for a large part of the Chinese exports as it goes to prove that the region as a whole helps to fuel growth.
The steep decline in the Japanese GDP gives rise to serious concerns. The figures released overnight showed a 0.9% decline (q/q). The crisis between Japan and China can be reflected in the sub-indices, but it is expected that the effect will be phased out over this quarter.
Sweden reported disappointing industrial production figures. The production fell by 4.1% - while a 1.5% fall had been expected. This pronounced fall is reflected in the price of SEK. Since the announcement SEK has fallen by almost 1%.
The major macro-economic players on the FX market chose to replace some of their SEK with NOK in anticipation that Norway is better prepared for the European recession. NOKSEK traded up from 116.49 to 117.48. We anticipate that SEK will also be replaced by NOK over the coming period. For further information on NOK and SEK, see Spot On, which will be published shortly.
Over the weekend, Greece approved the austerity plan for 2013. Now we await the decision by the IMF and the EU and the next tranche payment.
Market sentiment: Last week saw slight panic in financial market. Several of the important markets traded below significant levels of support. This being said, it is important to be aware that currently the majority of the financial market seems oversold.
Today’s events: No important economic indicators today, but please note that the US financial market is closed tonight and therefore FX trade may seem illiquid this afternoon.
Events of the week: Due to the oversold financial market, we are in for an interesting week and we will look for signs of stabilisation.
Tuesday ZEW will be announced and we expect stabilisation. On Wednesday we will pay attention to the US retail sales and the minutes from the most recent interest-rate meeting. On Thursday focus will be on GDP from the euro zone – we expect a minor fall. Friday will see industrial production from the US – and we expect a slight increase.
EURUSD (SELL): We recommend that in the short term investors SELL EURUSD with S/L at 129.02.
On Friday the weekly close was below the 200MA (128.20) which is a negative technical signal for EUR. The CME statement on Friday showed that once again speculative investors are to a greater extent exposed to a USD strengthening than a weakening.
It is expected that the agreement on the tranche payment to Greece will be announced at the end of November. Rumour has it that it will be on 26 November. Generally the uncertainty means that this month we will still focus on news from Greece.
Last week Spain secured funding for the coming months through the bond market, which per se is good news, but it means that the financial market will most likely discount the risk that Spain delays a decision about a rescue package from the EU. This is negative news for the market.
EURUSD closed below both 128.20 and 127.49. This means that according to the technical indicators EURUSD has for the short term potential for the level towards 125 and with strong support at 120.50. There will be resistance at 128.20 and 129.11. Subsequently the road is paved for a movement to 130.75-131.
EURNOK (NEUTRAL): We see a risk to the upside for EURNOK as EURNOK is oversold -> best illustrated by the low RSI and the positive bias, Technically, there is scope down towards 725 and then 721.67 which is the all-time low during the life of the euro. 733.30 must be breached to ease the pressure on the downside.
EURGBP (SELL): We recommend investors to SELL and to take profit at 77.75 and place stop/loss orders at 80.30.
EURGBP has breached the uptrend since Draghi's "Bumble Bee speech" back in late July. A weekly close below 79.70-80 will confirm that the downside is now really at play.
EURPLN (NEUTRAL): Last week the central bank lowered its interest rate which resulted in negative pressure on PLN. However, for the short term there is strong resistance at 417.40-60. In the event of a daily close above the level, there will be expectations of EURPLN in the range of 425-30.