UK Towards Referendum For Exiting EU
News and Events:
The global risk sentiment remained mitigated, as US session rallied on better-than-expected earnings, while the Japanese shares extended losses on the Strong Yen. In Europe, the major event was the UK PM Cameron’s speech announcing a referendum on UK exiting EU.
The currency markets were dominated by Yen strengthening overnight. USDJPY slipped under its 14-day MA, and the RSI index is now down at 57.50%. JPY extended gains against all of its major counterparts over the last 24 hours. The MACD (12, 26-day) indicator confirms that the trend turned bearish over the last two days. The stronger Yen hurt Japanese exporters, dragging the benchmark Nikkei average down 2.1 percent to a three-week closing low.
In US, the better-than-expected earnings from Travelers Cos. and Freeport-McMoRan Copper & Gold Inc. offset the weak economic data, released during the session. The S&P500 traded at 5-year high, ahead of today’s US House vote to suspend the government’s USD 16.4trln worth debt limit until May 19th. The US stock futures traded with a bearish bias in the Asian session, yet regained pace at the Europe’s opening. The US House vote results should give a clear direction to the US markets; in between, the bets are open on both sides.
In UK, the Prime Minister David Cameron finally gave his speech promising the referendum on UK exiting the EU by 2015. GBPUSD spiked at 1.5860, partly consolidating the three-day losses. Regarding the European deck, the EURGBP made sharp move to the downside, yet recovered over 0.84 rapidly. While Cameron managed to counter the anxiety over BoE Governor King’s statement of a potential stimulus to beat the inflation, the main focus remains on the sterling’s real effective exchange rate, seen too high to insure the rebalancing of the economy. According to January 10th meeting minutes, the UK bond purchased program is kept unchanged at GBP 375bln. In our view, the economic data and the monetary policy should impact the markets rather than concerns over the future of UK in EU. As released, UK December Jobless claims surprised (actual -12.1, vs. 0.5K exp. & 3.0K previous), while the three-month unemployment rate improved slightly to 7.7%, from 7.8% in the previous reading.
EURUSD jumped to 1.3325 in a single move, while the one-year implied volatility is still at five-year lows. We believe that the vol level is too low regarding the tensions within the EU and take a long view on EURUSD vol, on the back of our expectations that the volatility should come back in the game in line with political / economic unrest.
Today Key Issues:
- 2013-01-23T09:30:00 GBP December Jobless Claims Change, actual -12.1K, exp. 0.5K, last -3.0K
- 2013-01-23T09:30:00 GBP ILO Unemployment Rate (3 months), actual 7.7%, exp. 7.8%, last 7.8%$
- 2013-01-23T10:00:00 CHF Credit Suisse ZEW Survey, actual -6.9, last -15.5
- 2013-01-23T12:00:00 USD MBA Mortgage Applications, last 15.2%
- 2013-01-23T14:00:00 USD November House Price Index m/m, exp. 0.7%, last 0.5%
- 2013-01-23T15:00:00 CAD Bank of Canada Rate, exp. 1.0%, last 1.0%
- 2013-01-23T15:00:00 EUR EuroZone Consumer Confidence, exp. -26.0, last -26.5
- 2013-01-23T21:30:00 NZD Business NZ PMI, last 48.8
The Risk Today:
EURUSD remains in a 2-week sideways range between 1.3255 and 1.4304. In the mid-term despite the current pullback, the earlier break of 1.3310 resistance, recovery in momentum indicators and dominate uptrend channel suggests there is potential for an extension of strength to 1.3492. The first level of resistance are located at 1.3404 (14th Jan high), 1.3492 (2012 high) then 1.3550 (2nd Dec reaction high). The next support is located at 1.3267 (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 PM Cameron speech did not help the sterling bulls but in fairness the GBPUSD was already in a downwards trend. GBPUSD sold-off to a new monthly low at 1.5802 during his speech. With momentum / trend indicators decidedly bearish we would set the next downside target at 1.5758. The support zone is located at 1.5745/58 (30th July pivot), 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), 1.5921 (200d MA), 1.6007 (18th Jan high),1.6180 (10th Jan high), 1.6340 (2nd Jan high) and 1.6454 (29th Aug ’11 top).
USDJPY The post BoJ sell-off has taken USDJPY to 88.08 just above the 21d MA. The sharp shift in trend indicators and lack of demand at 88.10 suggests we are info for a deeper correction. On the downside, support is eyed at 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 89.35 (11th Jan high), 89.74 (21st June high), 90.00 (psychological), 90.20 (18th Jan high), 91.22 (Jun 2010 high), then 92.09 (11th June high).
USDCHF has corrected further from last weeks high at 0.9308, to 0.9275 low. However, despite the pullback, upwards trending and momentum indicators remain dominate. For now we should expect a consolidation phase around 100d MA. In the Mid-term, lasts week close above 0.9270 indicates retest of 0.9385 then further gains to 0.9457 (upwardly adjusted target). The next levels of resistance are located 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). The first levels of support should be located at 0.9287 (16th Jan low), 0.9085 (20th Dec low) then 0.9041 (1st May low).