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EUR Defends its Strength
The risk sentiment showed a global pullback, as soon as the US GDP growth came in worse-than-expected yesterday. A slowdown in US growth was widely priced in, yet the unexpected negative growth surprised to the downside. As the two-day FOMC meeting came to its end, the Fed extended its commitment to keep the interest rates at 0 – 0.25%, and to continue the USD85bn worth APP until the US job market sees “substantial” improvement. The working target is seen at 6.5%, far below the current unemployment (which had stabilized at 7.8% in December). The January unemployment is due on Friday; we expect the levels to stay in line with December figures. While the initial jobless claims are expected to the upside this afternoon, USD is heading to its 13-month low against EUR. The flight to safer heaven currencies brought JPY and CHF in sight, while EURUSD managed to defend yesterday’s rally. Euro outperformed against its major peers over the last two days, except CHF.
EUR Defends its Strength
The EURUSD’s move above 1.35 gave boost to EUR crosses, and created a strong EURUSD intra-day support at 1.3545.EURUSD bullish trend strengthens, the MACD 12-26 day indicator is comfortably positive. EURUSD trades above its UBB and is considered overbought at 72%, according to the relative strength index. Based on technicals, EUR should come under pressure to make a downside correction. Yet 1.35 / 10 zone should act as support for the coming days, as the market is building a EUR-positive bias. We believe that if the 1.3590 resistance is broken, the single currency should get a boost over 1.3650.
While the ECB’s Nowotny comments that the single currency is moving within the long-term bands, European politicians are concerned about the strong EUR damages over the Euro-Zone economy. In the long-term, we keep our bearish view on EUR and highlight that the Liikanen’s project is currently in the sidelines. As soon as the discussions over the bank’s restructuring restart, EUR should back down, as it has been the case on Jan 22th. EURUSD had responded by a sharp bearish move to rumors stipulating that German Bafin had asked two German banks to simulate a split between their retail and investment banks.
Flight to Safer Currencies
The uncertainty over the US economy triggered a flight to safer currencies, as JPY and CHF. While the disappointment over the US negative growth pulled the USDJPY down to 90.75, EURCHF wrote-off two-week gains. EURCHF Jan 9th – 30th bullish trend reversed according to MACD 12-26 day indicator, while USDCHF hit 0.9088 – 9-month lows.
On the Japanese deck, the USDJPY had an immediate reaction to US GDP release. USDJPY gave off 52 pips in a single move, slipping down to 90.88. While the Asian session saw JPY supportive trading, the European opening brought some consolidation to the pair, pushing the levels above 91.00.
2013-01-31T08:00:00 EUR GER Unemployement Rate, actual 4.8%, exp. 4.9%, last 4.8%
2013-01-31T09:00:00 EUR GER Jan Unemployment Gross rate, actual 6.2%, exp. 6.3%, last 6.3%
2013-01-31T09:00:00 NOK Dec credit indicator, actual 6.5%, exp. 6.9%; last +7.1%.
2013-01-31T13:30:00 CAD Nov Gross Domestoc Product m/m, exp 0.2%, last 0.1%
2013-01-31T13:30:00 CAD Nov Gross Domestic Product y/y, exp 1.4%, last 1.1%
2013-01-31T13:30:00 USD Dec Personal Income, exp. 0.8%, last 0.6%
2013-01-31T13:30:00 USD Dec Personal Spending, exp. 0.3%, last 0.4%
2013-01-31T13:30:00 USD Initial Jobless Claims, exp. 351K, last 330K
2013-01-31T13:30:00 USD Continuing Claims, exp. 3,171K. last 3,157K
2013-01-31T14:45:00 USD Chicago Purchasing Power; exp. 50.5, last 51.6
EURUSD has rallied to 1.3587 high and since then the pair has slowly corrected lower. At this point the bulls should not be concerned since the pullback will provide a health unwind of some overbought indicators. We will be watching a deeper correction to reload our long position. The first level of resistance are located at 1.3550 (2nd Dec reaction high) then 1.3617 (18th Nov high). The next support is located at 1.3404 (14th Jan low), 1.3256 (Dec range floor), 1.3123 (65d MA & Uptrend channel), 1.2931 (11th Dec low), 1.2878 (7th Nov reaction high), 1.2787 (200d MA), 1.2722 (13th Nov pivot high), 1.2630/62 (3rd July high & 100d MA), 1.2463 (31st Aug low), and 1.2386 (14th & 17th Aug high).
GBPUSD hit a low of 1.5674 Monday, but has since rebounded to highs of 1.5840 (out-pacing our expectations), however the recovery rally has failed to damage any important resistance (i.e 200d MA). It is highly possible that the pair is merely mirroring the moves in EURUSD, in which case we may be reverting to a sideways, range-trading environment. In the mid-term, bearish momentum (MACD firmly below zero) / trend indicators should pull the currency down to 1.5574. The support zone is located at 1.5574 (9th Aug high), 1.5458 (26th July low), 1.5405 (8th June low), 1.5390 (6th June low), then 1.5266 (13th Jan low). Watch for next resistance to come into play at 1.5891 (21st Jan high), 1.6007 (18th Jan high), 1.5921 (200d MA), 1.6180 (10th Jan high), 1.6340 (2nd Jan high) and 1.6454 (29th Aug ’11 top).
USDJPY has been unable to break 91.22 after three attempts which could be viewed as a reversal indication. However, pullbacks continue to be met with strong demand. In the mid-term, despite one-directional rise we think fundamentals have set the course and expected an extension target of 92.49 (key will be this weeks NFP). On the downside, support is eyed at 89.35 (11th Jan high), 88.88 (21d MA), 88.10 (23rd Jan low), 87.60 (16th Jan low), 86.64 (27th Dec high), 85.54 (5th April high), 84.23 (15th March high) 81.50/69 (15th Nov. high & 28th Nov. low), 81.00 (16th April pivot), 79.06 (9th Nov low), then 78.75 (8th Oct high). Above us, minor resistance remains at 91.22 (Jun 2010 high) then 92.09 (11th June high).
After a short pause post-triangle break, the USDCHF bears charged in pushing the pair down to 0.9085, significantly below our near term 0.9170 target. The deep pullback has been support by momentum and trend indictors (back in downtrend) and suggests further downside should be expected. The first levels of support should be located at 0.9085 (20th Dec low) then 0.9041 (1st May low). The next levels of resistance are located 0.9267 (29th Jan high), 0.9304 (100d MA), 0.9385 (18th Jan high), 0.9457 (21st Sept high), 0.9515 (13th Nov high & uptrend top), 0.9610 / 20 (26th Aug high), 0.9810 (10th Aug high & uptrend channel), 0.9900 (2nd Aug high), and 1.0000 (psychological resistance).