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Sequester-On, Risk-Off

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#1 ⇑ Haut ⇑ 01-03-2013 12:26:07

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Sequester-On, Risk-Off

Forex News and Events:
The US sequestration started. Yesterday, the US Senate failed to reach an agreement to avoid the federal spending cuts totaling up to USD 85bn by the end of 2013. US equities retreated, while the 10-year Treasury bond yield fell.

On the currency markets, USD gained versus all of its G10 peers. EURUSD lost one figure, GBPUSD wrote-off intra-day gains, USDCHF rallied, while JPY remained on hold.

US Over the Edge
The US sequestration started today at midnight, as the US Senate failed to reach an agreement to avert the budget cuts. “Middle-class families can’t keep paying the price for dysfunction in Washington” said Obama. “How much more money do we want to steal from American people to fund more government” replied the House speaker Boehner. As a result, the federal spending cuts will reach USD 85bn by the end of 2013. Over ten years, the total spending cuts will total up to USD 1.2trln.

While the negative impacts of the sequester will weigh on US economy within several months, the market reaction has been immediate. The US equities retreated, while the US sovereign bond yields erased 3 basis points in NY. The downside was limited by the US economic data. The GDP growth fell short of market expectations however managed to climb to 0.1% from -0.1% seen in Q3. The initial jobless claims came in better than the market estimates, while the continuous claims improved to 3,074K this week.

EUR Hit by Risk-Off
As US moved to the sequestration phase, the risk-off impacted EUR to the downside. The EUR-bear was further encouraged as the pair crossed its 100-day MA (1.3128) to the downside. EURUSD remained well supported at 1.3050 on the back of the option-related demand overnight, yet the weakness broadened in Europe. This morning, EURUSD tested 1.31 on the back of better-than-expected German retail sales and improved manufacturing PMI out of France, Germany and Spain. The Italian PMI dropped in February, yet the overall Euro-Zone PMI remained slightly better than the estimates. EURUSD upside remained limited as the bias is clearly negative on EUR at this point.

Technically, MACD 50-100 day signals the strengthening of the bearish trend, while the negative momentum deepens. We believe that 1.2998 / 30 zone should be critical, where a break down may open the way for further EUR-bears.

CHF Bull
USDCHF saw a decent rally yesterday, pulling out our 0.9336 resistance. USDCHF tested 0.94 – its highest level since November 2012.Technically, we see further recovery for USDCHF, yet expect some minor correction on the way. The RSI is at oversold edge, while the USDCHF hit its upper Bollinger Band this morning.

Regarding economic data, the GDP growth surprised to the upside in the fourth quarter, while the manufacturing PMI dropped to 50.8 in February from 52.5 reading last month

Today's Key Issues (time in GMT):
2013-03-01T13:30:00 CAD 4Q GDP Annualized, exp. 0.6%, last 0.6%
2013-03-01T13:30:00 CAD Dec GDP m/m, exp. -0.2%, last 0.3%
2013-03-01T13:30:00 CAD Dec GDP y/y, exp. 1.0%, last 1.3%
2013-03-01T13:30:00 USD Jan Personal Income, exp. -2.4%, last 2.6%
2013-03-01T13:30:00 USD Jan Personal Spending, exp. 0.2%, last 0.2%
2013-03-01T13:30:00 USD Jan PCE Core m/m, exp. 0.2%, last 0.0%
2013-03-01T13:30:00 USD Jan PCE Core y/y, exp. 1.3%, last 1.4%
2013-03-01T14:55:00 USD U. of Michigan Feb Confidence, exp. 76.3, last 76.3
2013-03-01T15:00:00 USD Jan Construction Spending m/m

EURUSD has stalled at 1.3161 well short of upside resistance, indicating the bull really do not have the numbers to launch solid rally. Currently the pair is range-bound just above rising daily cloud floor. Below 65d MA resistance we would be looking to reload shorts for a test of critical support at 1.3045 (also daily cloud base). Break of support would be a bearish signal and indicate an extension of weakness to 1.2878. The next support is located at 1.3045 (daily cloud floor), 1.3000 (4th Jan low), 1.2931 (11th Dec low), 1.2878 (7th Nov reaction high). The first level of resistance remains at 1.3250 (65d MA), 1.3460 (14th Feb high), 1.3578 (7th Feb high), 1.3690 / 1.3710 (27th Sept high) then 1.3868 (9th Dec high).

GBPUSD has rallied to 1.5226 but as weakened since then. Currently indictors are slightly overstretched which could extended the rally, however any buying will likely be short lived. Despite the two day rally we remain bearish as indictors are negative and no demand areas have been challenged (benign range 1.5065 to 1.5226). Unlike the Fed, expectation for the BoE is more QE which should equal further erosion in GBP. The support levels from here are thin below with 1.5065 (25th Feb low), then 1.4950 (8th July 10’ low). Watch for next resistance to come into play at 1.5527 (22nd Feb high), 1.5689 (13th Feb high), 1.5850 (8th Feb high), 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 ’11 top).

USDJPY has furthered its recovery rally for the third straight day reaching 92.85. With the new dovish BoJ nominees and lower risk in Europe we suspect that the pair will continue to recover. Resistance at 93.00 / 15 will provide the first real challenge to USDJPY bulls. On the downside, support is eyed at 90.93 (25th Feb low), 89.35 (11th Jan high), 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 93.00 / 15 (21d MA), 93.80 (13th Feb high), 94.98 (6th May high) 95.00 (psychological level), 96.00 (11th June), then 97.75 (7th Aug high).

USDCHF has finally broken above 0.9336 resistance (after 5 attempts) With trend and momentum indictors significantly bullish we expect to see our extension target at 0.9385 challenged in the near term. The next levels of resistance are located 0.9385 (18th Jan high), 0.9438 (200d MA), 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). The first levels of support remains at 0.9200 (21d MA), 0.9085 (20th Dec low) , 0.9041 (1st May low) then 0.8928 (Feb 12’ low).

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    Sequester-On, Risk-Off

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