EURJPY trading at pivotal 200-day moving average - will it hold this time?


MAJOR HEADLINES – PREVIOUS SESSION


  • Japan Oct. Nationwide Department Store Sales fell -10.5% YoY vs. -7.8% in Sep.

  • Switzerland Oct. Trade Balance rose to 2.46B vs. 1.91B in Sep.

  • Sweden Oct. Unemployment Rate fell to 8.1% vs. 8.4% expected and 8.3% in Sep.

  • UK Oct. Major Banks Mortgage Approvals rose to 61k vs. 56k in Sep.

  • UK Oct. Retail Sales rose 0.4% MoM and 3.4% YoY vs. 0.5%, 2.9% expected, respectively

  • Canada Sep. International Securities Transactions out at 13.6B vs. 3B expected

  • Canada Sep. Wholesale Sales rose 0.2% MoM vs. 1.0% expected

  • Canada Oct. Leading Indicators rose 0.7% as expected

  • US Weekly Initial Jobless Claims out at 505k vs. 504k expected and 505k last week

  • US Weekly Continuing Claims out at 5611k vs. 5598k expected and 5650k last week

THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • US Oct. Leading Indicators (1500)

  • US Nov. Philadelphia Fed (1500)

  • US Q3 Mortgage Delinquencies (1500)

  • US Treasury Secretary Geithner to Testify about Financial Regulation (1500)

  • US Fed's Fisher to Speak (2145)

  • New Zealand Oct. Credit Card Spending (0200)

  • Japan BoJ Target Rate (no time given)

Market Comments:

The USD and especially the JPY have taken a machete to the rest of the market since yesterday as risk soured in Asia and Europe overnight. EURUSD has performed its fifth sharp reversal in direction in seven days, though its big support line at the bottom of the range just above 1.4800 is still intact as of this writing. AUDUSD broke down through the first big support level at 0.9210 and may focus on the massive trendline support next, which comes in around 0.9100 today. EURJPY is perhaps the most interesting JPY cross, as it has touched its 200-day moving average yet again – see today’s chart for more. USDJPY is down perched close to the recent 88.72 low. All of these support levels are likely to give way if we get a simple 2-4% consolidation in equity markets as a coincident indicator. The correction in risk feels like it has better odds of continuing here since it has been led by the higher beta currencies like the AUD.

OECD to New Zealand: leave rates alone
The OECD said in its most recent Economic Outlook that New Zealand should leave its 2.50% rate unchanged due to “weak and fragile private demand”. The report added that “the recovery could be hampered by the overhang of high private-sector indebtedness, ongoing credit contraction, the currency’s recent strength and rising unemployment.” For his part, the RBNZ’s Bollard most recent comment on interest rates suggested that rates won’t be tinkered with until the second half of 2010, and yet according to the Credit Suisse measures of forward central bank policy expectations suggest that the New Zealand leads the rest of the G-10 central banks in the amount of tightening expected over the next 12 months. It would seem there is plenty of room for disappointment in the market’s expectations, and this news item has already triggered a massive adjustment lower in NZDUSD since yesterday’s high – almost 3%, in fact.

US Data
The US jobless claims data was in-line with expectations, but the fact that we have had a string of strong improvements in jobless claims suggests that the market is disappointed with this number. The question is now whether we get the usual, inane response from the market here as risk tries to celebrate bad data with a rally because of the implications for easy liquidity on asset markets. This theme has reached ridiculous proportions of late, so it may at least take a pause for a while.

Euro rhetoric: Juncker gets serious
The EU’s Juncker was out today with very direct language on the Euro strength, saying that it is overvalued and that the dollar is too weak. He also said that he will speak to the Chinese about exchange rates as he and Trichet and others are on their way to China on November 28. This is an important trip where the obvious topic of reserve diversification is to be addressed. Imagine if Bernanke were to announce a trip to China to chat about the USD – certainly an important event. The question is whether the Chinese can be influenced in their decision-making on the yuan. The conventional wisdom is that domestic pressures and the preservation of the regimes power are the only inputs into the Chinese leadership’s equation, and Obama saw little success on his just completed trip.

Status of risk
We notice an interesting article detailing plans by the likes of Belarus and Iran to issue debt to foreign buyers. When this kind of item crosses the wires, one has to take a pause and wonder at the breathtaking recovery in risk appetite over the last 12 months – from wondering if the world’s major economies’ financial systems would survive back then to now extending credit to dictators. Amazing – but potentially also a sign that we are maxing out on the risk front soon.

Looking ahead
Later today we have the Philly Fed – not likely to show any increase over the last month’s data as this number has already advanced to the higher end of its traditional range. The key focus of the moment, as always, is the direction of risk and the direction for bond yields. As we focused on yesterday, the US 10-year note benchmark yield is at a critical trendline/200-day moving average juncture. The economic calendar contains nothing of note through tomorrow besides a Bank of Japan rate announcement tonight (are we ever surprised on that front?) and German producer prices tomorrow.

Chart EURJPY
The 200-day moving average the big focus of the day due to the number of times this level has served as a key pivot point in the past. If risk continues to adjust lower here and bond yields remain low or even drop further, we could see a move below the MA and even a try at the lower end of the longer term range.