Review: Will the fiscal cliff situation not be resolved until February?
Swedish consumer as well as industrial confidence fell steeply. SEK weakened by 0.91% against EUR.
In the UK, the 1st revision of Q3 GDP did not offer any surprises.
The US economic indicators generally offered positive surprises. Durable goods rose by 1.5% (estimate: -0.5%), the Richmond production index rose to 9 (estimate: -7), home prices rose by 0.2% in September (estimate: 0.4%) and consumer confidence rose to 73.7 (estimate: 73.0).
Now the US consumer confidence is at the highest level since 2007 despite the steep decline in consumer confidence in the regions affected by Hurricane Sandy.
Dick Durban of the US Senate (Democrat and holding the second highest position in the Senate) said about Fiscal Cliff and the debt-ceiling negotiations: "We're not going to find ourselves at some big party celebrating in February and then turn around in March and have another doomsday scenario with the debt ceiling. We've got to get this done as one big package."
The interesting about his statement is his indication that he does not expect Fiscal Cliff to be clarified until February! The automatic austerity measures will take effect on 1 January 2013.
Market sentiment: Profit taking
Following the optimism in the market until Monday's Troika negotiations, Tuesday was a day of profit taking - classic "buy the rumour, sell the fact".
We still expect that this phase is a temporary one and expect that the sentiment in general will be positive for the rest of the year and in early 2013. This assumption is supported by the appreciation of emerging market currencies yesterday, among other things. Hence we primarily saw a movement of EUR yesterday.
Today’s most important events:
EUR: Money supply data as well as lending to private individuals at 10.00.
USD: Beige Book from the Federal Bank Districts at 20.00.
EURUSD (NEUTRAL): Profit taking
Despite the profit taking yesterday, we still expect that the Troika's agreement with Greece will benefit EUR. It is expected that the agreement will be approved on 13 December.
We recommend that investors take setbacks as an opportunity to pick up EURUSD.
Resistance and support:
Downside: A breach below 126.50-127.30 paves the way towards 124.75 and then 120.50.
Upside: 130.00-130.25. Then 131.72.
GBPUSD (Neutral to SELL): SELL with take/profit at 157.50. Stop/loss order at 160.85.
As stated yesterday and the day before yesterday, we find it likely that GBP will weaken. This is, among other things, due to the following:
Economic indicators: The Olympics gave a temporary boost – we expect this is over now.
Autumn statement: We fear that the state cannot meet its target of stabilising the budget in 2015-2016. Will the AAA rating be in jeopardy?
Signals from the Bank of England: The inflation report as well as the minutes from the interest-rate meeting signalled that the Bank of England is ready to introduce further easing.
In connection with the autumn statement, it now seems that also the media have gotten wind of the risk.
ZAR: We recommend that investors who have not bought ZAR take a look at our most recent investment case. The case could in actual fact also be to sell DKK against ZAR, but we see even bigger potential in selling GBP. Read about the investment case here.
EURSEK (NEUTRAL): Yesterday saw weak economic indicators in Sweden. It is becoming increasingly difficult for The Riksbank to argue in favour of keeping the interest rate unchanged on 18 December. We are, however, tempted - in the short term - to Buy SEK against EUR, as much as already been discounted in the current rate.
Resistance and support:
Downside: 859.90 and then 850.50 and 841.50.
Upside: 867.00 and then 872 and 879.