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Euro Remains Fragile
Last night’s comments out of China boosted the risk appetite, as the Chinese Premier Wen Jiabao kept its growth target unchanged at 7.5% and revised the CPI target down to 3.5% from 4.0% for 2013. In Australia, RBA kept its cash rate unchanged at 3.00%, with scope to ease if needed. Asian stock markets recovered from Monday’s sell-off, commodities advanced.
JPY extended gains overnight as the Japanese opposition DPJ didn’t lend support to Iwata’s nomination for the Deputy Governor seat in BoJ. JPY remained bid, USD lost some ground, EUR recovered over 1.30, while AUD rallied post-RBA rate announcement.
Technicals Favor JPY Recovery
Keisuke Tsumara, a lawmaker from DPJ, said yesterday that he was personally opposed to Iwata’s nomination as DepGov in BoJ. The statement was interpreted as a potential barrier to the PM Abe’s choice. The freshly nominated Japanese board seeks more QE, temporary fiscal spending measures, higher JGB buy duration, lower JPY and BoJ law revision to defeat deflation and reach the 2% inflation target within 2 years. Despite opposition, things should change in Japan.
JPY and its crosses extended gains overnight. Technically, a Bearish Harami has been formed on the daily chart, predicting a future bearish trend for USDJPY. USDJPY crossed its 21-day MA to the downside. According to technicals, we should expect JPY consolidation in the coming days. Yet regarding the historical pattern, we interpret the signal as a short-term correction and place our support at 90.61 – Fibonacci 76.4% level. Overall, we keep our bearish view on JPY.
Euro Advances on Short-Covering
The Euro-Zone Services and Composite PMIs showed that the contraction narrowed more than the market estimates in February. The supportive German Services PMI at 54.7 gave a tiny boost to EUR this morning. Yet, the French, Italian and Spanish PMIs remained in the contraction zone. Nothing to be very proud of or to raise our weak growth estimates. The GDP numbers in Q4 are scheduled tomorrow, and the markets do not forecast any improvement regarding the European growth.
Thanks to some short-covering and the buoyant JPY, EURUSD managed to recover over 1.30. Ahead of the ECB rate announcement, EUR might advance on speculative longs and further short-covering. Yet, the dovish tone expected out of ECB’s meeting Thursday should limit the EUR-longs quickly. Fibonacci 61.8% level at 1.3074 acted as intra-day resistance to the weak rally on PMI figures this morning. EURUSD failed to extend gains further on the back of the negative-bias regarding the EUR-trading.
In Australia, RBA kept its cash rate unchanged at 3.0% as the Chinese growth seems stabilizing at encouraging pace, the commodity prices are still high, and the inflation remains within the targets. Aussie recovered from yesterday’s heavy sell-off pulling the pair down to its lowest level since July. AUDJPY rallied to 1.0253, pulling up the levels back into our trend corridor 1.0201-1.0357. The trend on Aussie remains negative, while 1.0270 level is seen as critical, to support a potential upside. We hear some players considering long positions due to dividend-related AUD longs from the corporates, while others think that the fact is already priced in.
AUDJPY recovered above 95.00 post-RBA rate announcement. We observe the similar Bearish Harami pattern on AUDJPY chart and interpret the signal as a short-term correction rather than a longer-term trend reversal.
2013-03-05T15:00:00 USD ISM Non-Manufacturing Composite, exp. 55.0, last 55.2
EURUSD has rebounded further from 1.2966 lows but has failed to generate enough demand to break into daily cloud cover. Momentum and trend indicators are solidly bearish and indicate further downside. A daily close below 1.3000 support would be a bearish signal (opportunity to reload on shorts) and indicate an extension of weakness to 1.2878. The next support is located at 1.2966 (1st Mar low), 1.2931 (11th Dec low), 1.2878 (7th Nov reaction high). The first level of resistance remains at 1.3090 (daily cloud cover), 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 recovered to 1.5158 on solid demand while the appearance of bullish divergence suggests that additional upside to 1.5226 is likely. In the mid-term, we remain bearish as indictors are negative and believe bearish trending condition will persist. Unlike the Fed, expectation for the BoE is more QE (making this week’s BoE MPC meeting critical) which should equal further erosion in GBP. The support levels from here are thin below with 1.4950 (8th July 10’ low), 1.4687 (9th July 2010 low), 1.4500 (9th Jun 2010 base) Watch for next resistance to come into play at 1.5056 (25th Feb low), 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 slipped lower (93.21 low) into a choppy sideways range on the back of BoJs Iwata dovish comments. We remain bullish heading into the BoJs policy meeting this week (despite the formation of a Bearish Harami on the daily charts). Resistance at 94.77 (Feb high) will prove the next real challenge to the current bullish trend. On the downside, support is eyed at 93.18 (21d MA), 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 94.77 (Feb high), 94.98 (6th May high) 95.00 (psychological level), 96.00 (11th June), then 97.75 (7th Aug high).
USDCHF has retraced marginally to a 0.9393 low but has failed to challenge near term support. With trend and momentum indicators significantly bullish and the violation of 200d MA, we expect to see our extension target at 0.9457 challenged in the near term. The next levels of resistance are located 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).