Review: The US: There are growing signs that the US housing market is beginning to gain momentum again. Yesterday home sales came as a positive surprise, which sent the equity indices into positive territory.
In Europe, France’s credit rating was downgraded by Moody's from Aaa to Aa1. The rating agency maintains its negative outlook for the second largest economy in Europe, which means that the agency expects to downgrade the rating again within the coming 12-18 months if the economic development does not improve. The downgrade is bad news for EUR, but today’s political meeting of the Eurogroup and the IMF may send EUR into positive territory. The meeting is scheduled for 17.00. We expect that the parties will to some extent reach agreement and hence open up for the first payment to Greece so the country can be kept afloat. It should be borne in mind, however, that it is not a done deal - yet. Yesterday the Netherlands, among other countries, protested strongly. If the negotiations break down, EURUSD may fall steeply.
Portugal was approved by the Troika, which means that Portugal is on the right track and will have the tranches paid out on time. This is basically positive for EUR.
The Middle East: The crisis in Gaza continues to escalate … at some point it may become too much for investors and the safe-haven currencies will be in strong demand.
China: There is focus is on the efforts by China to continue the reforms to make the yuan convertible, which is very positive for the Asian markets.
Japan: As expected, the interest-rate meeting was a non-event. The central bank wants to see the full effect of the most recent initiatives before it launches new ones.
Today’s events: At 10:00 - GDP from Norway. A level of 0.5% is expected as compared to 1.0% at the latest announcement. A positive surprise would be good news for NOK, while on the other hand it will take a steep decline before we see a negative effect. At 13:00 - Monetary-policy meeting in Turkey.
At 17:00, the Eurogroup and the IMF meet. Clarification of the strategy in respect of Greece. Will Greece receive the next tranche this week?
At 18:15, Ben Bernanke delivers a speech: Will there be news about operation twist? Will the programme be extended? Will it become less neutral in future? Will the Fed begin to buy government bonds?
EURUSD (SELL): We recommend investors to SELL EURUSD in the short term with a S/L to be activated in the event of a daily close above 128.84. It is important to understand that this is an active S/L. This means that stop-loss is only to be effected if the daily close is above 128.84.
The first level of resistance is at 128.06 (200MA) and then at 129.17 (50MA). Then strong resistance is found at 131.85.
The many current political events will have a heavy impact on whether EURUSD will continue the upturn that began in July.
We expect that EURUSD has a short-term target down to the range of 125.50-126.50 and then it will increase strongly through December due to a clarification of the fiscal cliff situation and the situations in Greece and Spain.
Momentum of the technical indicators are about to favour a stronger EUR. MACD and stochastics give a buy signal.
USDPLN (SELL): We recommend investors to SELL USDPLN and to take profit at 315.00 and place stop orders at 327.
A positive financial market this week will support further declines in USDPLN. If trade falls below 320, S/L should be moved to 323.82.
EURTRY (NEUTRAL): Today focus will be on the CBRT. Last week the central bank governor stated that the CBRT assesses that TRY is too strong compared to its trade-weighted exchange rate. REER measured for CPI.
We expect the central bank to lower the upper interest-rate corridor. Whether it will also lower the lower one is doubtful, but if it does, it will have a marked effect on TRY. If the lower interest-rate corridor is lowered by 0.5, we expect that it will result in an immediate strengthening of EURTRY by 1-2%.
There is resistance at 230.47 (200MA) and 233.60-34.
We expect that USDTRY will continue to be in the trading range of 177 – 18. In respect of the coming period, we expect that the upper part of the range will be tested.
It should be noted that the divergence of 1.5 % in favour of TRY a couple of weeks ago has – as expected – been offset.
EURTRY vs. EURUSD