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Itís All About Payrolls
The currency markets were dominated by EURUSD and USDJPY rallies in the Asian session, while the risk sentiment remained mitigated. The Chinese manufacturing PMI remained in the expansion zone, yet fell short of the market expectations. In Japan, the unemployment saw a slight increase, and the vehicle sales slumped by a heavy 12.9%. As the Japan EconMin Amari and FinMin Aso think that there is no need to revise the BoJ law now, the PM Abe is narrowing down the candidates for the next BoJ Governor. Today, the eyes are on the US nonfarm payrolls, either to give a supportive voice to the current trend in weaker JPY and stronger EUR, either to trigger an appropriate pullback. Despite the disappointing GDP figures released earlier in the week, the NFP figures are seen to 165K, higher than 155K in December reading. While the negative GDP growth is believed to be due to USD50bn cut in governmentís defense spending, the optimism on US job market keeps tight on the market place.
USDJPY still not tired
The ever-weaker Yen lost its surprising effect since the eyes target 95.00 zone for USDJPY. Despite the growing tensions between the government and the BoJ, the mediocre economic data gives support to Abeís further easing policy. In our view, Abe should be comfortable to let the Yen down to 100 zone, yet the positive momentum to bring the currency to its next resistance is muted, ahead of NFP figures.
EURUSD rallies to 1.3657
The single currency extended the weekís gains versus all of its major counterparts except SEK. EURUSD left behind the 1.3590 resistance and advanced over 1.3650. The EUR bull got support from IMF stating that Cyprus has been able to meet its financial needs through domestic borrowing, and expects to meet its obligations.
The EURUSD is overbought at 76.2% and the pair still trades over its UBB. EUR-positive bias offset the technicals, as the economic data push the EUR and EUR crosses higher. The Euro-Zone country PMIs came in better-than-expected for Spain, Italy and Germany, yet unchanged in France. The Euro-Zone PMI saw its contraction narrowing to 47.9, (from the 47.5) in January, while the unemployment remained stable at 11.7%. The spread between the 10-year Spanish vs. German bonds widened, and EURJPY hit 125.97 in reaction to the supportive data. On the GBP deck, the EURGBP rushed to 0.86482 (its highest level since Nov 2011), as the UK PMI weakened to 50.8 from 51.4 reading in December.
The Swiss PMI crossed over 50.0, meaning that the Swiss manufacturing expanded in January and the expansion was better-than-expected. While EURCHF remained well supported above 1.2330 zone yesterday, the good news gave a rapid boost to Swiss franc, pulling the quote down to intra-day lows. USDCHF followed by a sharp move to 0.9041 support, yet failed to break down at this first attempt. The main driver for the franc appreciation is the flight to security. We believe that there is room for further franc appreciation if the markets get disappointed by NFP figures in the afternoon.
2013-02-01T09:30:00 GBP Jan PMI mfg index, actual 50.8, 51.0 eyed; last 51.4.
2013-02-01T10:00:00 EUR Jan inflation - flash, actual 2.0%, 2.2% y/y eyed; last 2.2%.
2013-02-01T10:00:00 EUR Dec unemployment, actual 11.8%, 11.9% eyed; last 11.8%.
2013-02-01T13:30:00 USD Jan non-farm payrolls, +160k eyed, IFR +135k; last +155k.
2013-02-01T13:30:00 USD Jan unemployment, 7.8% eyed; last 7.8%.
2013-02-01T13:58:00 USD Jan Markit PMI index - final, 56.1 eyed; flash 56.1.
2013-02-01T14:55:00 USD Jan U.Mich sentiment index - final, 71.5 eyed, IFR 70.3; prelim 71.3.
2013-02-01T15:00:00 USD Jan ISM mfg index, 50.5 eyed, IFR 50.7; last 50.7.
EURUSD bulls have shown no fear of heights as the pair rallied aggressively to 1.3640 Ė with no real pullback or pauses. RSI is slightly overbought which could indicate a correction pre-NFP. However with other bullish technical indicators such as trend in MACD and uptrend channel undamaged (consecutive higher highs and higher lows), we suspect a test of 1.3690 is highly probable. The first level of resistance are located at 1.3690 (27th Sept high) then 1.3868 (9th Dec high). The next support is located at 1.3491 (25th 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 has had another impressive burst higher yesterday, taking the pair to fresh highs above 1.5760, and shifting focus back to the topside. Today we are seeing a marginal correction in gains but with momentum (MACD firmly below zero) / trend indicators turning marginally bullish a continuation pattern to 1.5891 is expected. Watch for next resistance to come into play at 1.5891 (200d MA & 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 í11 top). 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).
USDJPY is still managing to find willing bidders above 92.00 today, but we have still not seen enough steady upward momentum to challenge the next major resistance level (and our target level) at 92.49. 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 todays NFP). Traders should also be watching the breakout in the EURJPY. 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 92.49 (28th June high), 94.19 (Fibo lvl Jun 2007 high to Oct 2011 low).
After a short pause post-triangle break, the USDCHF bears charged in pushing the pair down to 0.9085, but since then the supply has dried up. That said deep pullback has been support by momentum and trend indictors (back in downtrend) and suggests further downside should be expected. A break of 0.9085 (in the absent of a recovery rally through 0.9180) should triggered extended weakness to 0.8929. The first levels of support should be located at 0.9085 (20th Dec low) , 0.9041 (1st May low) then 0.8928 (Feb 12í 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).