Feeling The Squeeze
Despite negative Euro-area headlines roughly two hours ahead of the U.S. equity market closing bell – Greek officials postponed a meeting to discuss the €130bln bailout plan – major U.S. stock indices managed to end with daily gains of about +0.23%, on average. Also contributing to positive equity momentum and the sharp USD sell-off were comments by Fed Chairman Bernanke – ‘a long way to go before the labor market can be said to be operating normally’ & ‘particularly troubling is the unusually high level of long-term unemployment’ – keeping QE3 speculation at elevated levels.
Just about an hour into Tokyo trading hours, most USD majors consolidating within tight approximate 30 pip ranges. Quite the departure from price action earlier in the NY session which saw a majority of G10/USD ccy pairs hit multi-month highs vs. USD while USD/G10 ccy pairings recovered nicely ahead of potential CB intervention zones.
In a relatively light Asia-Pacific data/event schedule on Wednesday:
- U.S. API crude oil inventories fall -4.5mln barrels versus the prior week’s 2.0mln increase
- Japan Dec. Current-Account Surplus 303.5bln yen
- Japan 2011 Current-Account Surplus 9.629tln yen
- Japan Dec. Trade Balance (balance of payments basis)
- Japan 1st 20-day exports for Jan. ‘12 dropped -11.9% on year vs. -8.0% in Dec. '11
- U.K. BRC Jan. Shop Price Index rose +1.4% on year vs. +1.7% in December
- China sold net -898.6bln yen of Japanese short-term debt In December
- China sets Yuan reference rate at 6.3027 vs. USD, +0.14% higher and the most since Dec. 30th
- S&P: Asia creditworthiness may be more negative than '08-'09
- S&P: Asia may not repeat `decisive' policy responses of '08-'09
- S&P: Domestic politics may top concerns of Asian politicians
Despite ‘risk on’ type price action, still hard (in my opinion) to digest recent price action as more than just a large short squeeze. While I’m quick to note when right, just as quick when wrong and was certainly wrong about the extent of the ongoing EUR rally. However, worth noting is that the S&P 500 currently hovers just below the technically key 1360/75 resistance zone (0.764 & 0.786 fibo levels for the 1576/666 Oct. ’07 to Mar. ’09 decline) which has capped attempts higher ever since:
EUR/USD consolidating into a symmetrical triangle on shorter term charts, hourly closing breaks above the top of the triangle (around 1.3265/70) or the triangle base (around 1.3235/40) may determine s/t direction. Real money & mid-East names were rumored to be bidding EUR up to current levels sporadically throughout prio: FED, ECB lax policy outlooks...posted Jan. 27 for a total potential loss of just about -300 pips. While tough to watch, think sitting back and letting the Greek drama unfold may be appropriate.
GBP/USD sees immediate & meaningful resistance near the convergence of the 200-day sma and the 50% retracement (August 19 '11 to Jan. 13 '12; approximate 14-big figure decline) around 1.5925/30. Above may see decent supply around the psychologically & technically significant 1.6000 figure. Strategy UPDATE: Potential cable shorts around 1.5750 also hurting from the current short squeeze. However, the BoE begins its two day meeting today with the BRC Jan. Shop Price Index falling -0.3% from the previous month which seems to tilt the scales towards more BoE QE
EUR/JPY reportedly bolstered on recent USD/JPY and EUR/USD macro demand from real money players. Rumors of stealth JPY intervention in early Nov. ’11 & potentially more to come underpinning s/t yen weakness although l/t direction still likely to depend on Europe debt crisis developments.
EUR/TRY finding decent supply near the key 200-hr sma around 2.3230/40 while s/t trend-line support around 2.3025 appears to be the next key downside pivot. Strategy UPDATE: Potential lira longs funded through euros back in Oct. ’11. Oct. 2011 around 2.4750 up about +1600 pips in addition to positive carry value since late October. Potential final limit targets around 2.2750 are in close view but still cautious of TRY strength as Turkey is not at all shielded from Euro-area debt risks. Accordingly, think locking in at least +1300 pips of possible total reward by adjusting potential 2.2750 limit targets to trailing stops of about 350 pips from current levels (around 2.3150 at the moment) may be more than justifiable considering current EUR topside momentum.
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