World Currencies Preparing For A Currency War
News and Events:
The global risk appetite weakened over the US and Asian sessions, as the World Bank revised to the downside the Japanese and US growth, and predicted a second year of contraction in the Euro-Zone. While 2013 was seen as a recovery year for the world's leading economies so far, the anticipations lost pace as the structural, economical and political concerns remain far from being resolved, particularly in US and the Euro-Zone. In Japan, the Yen weakness raised concerns regarding a potential debt default, while the Fed President Plosser warned over the broadening of 'currency wars'. Next week's BoJ meeting should results in a doubled inflation target (from the actual 1% to 2%), to give further evidence to our prediction of a widening 'currency war' on the global FX markets in 2013. Indeed, the policymakers already give signs of enthusiasm to enter the game. The Eurogroup Chairman Juncker stated that the single currency is 'dangerously high', while Norges Bank Deputy Governor Qvigstad warned of an interest rate cut on Tuesday, if NOK remained at its current levels. In reaction, EURUSD overreacted by giving off 74 pips in a single move in the overnight session, while USDNOK surged to 5.5963, writing-off one-week gains. According to the MACD 12-26-days indicator, the USDNOK trend reversed to the upside, amid the sharp bullish move triggered by Qvigstad's threats. In US, talks over the US debt ceiling started to give voice in the headlines, as USD 16.4trln debt ceiling should be breached by next month, unless the Congress decides to raise it. President Obama announced that he refuses to negotiate the debt ceiling with Republicans, and asked for a separate discussion over the spending cuts in order to get the deficit in a better shape. As released yesterday, the US Empire Manufacturing disappointed by decreasing to -7.78 (vs. the revised -7.30, and the expected 0.00), while Advance December Retail Sales increased to 0.5% (vs. 0.2% exp. % 0.3% prev). The monthly PPI recovered to -0.2% from -0.8%, while the PPI ex-Food & Energy remained unchanged at 0.1%, indicating that the food and energy prices were the main drivers in December producer price differential. The encouraging data offset the debt ceiling concerns in the US session as the stock markets ended the day in the green. Yet, the stock futures failed to extend gains overnight. Despite crowded wires, the main focus remained on a global JPY and the EURCHF rally. The Japanese Yen extended gains against all of its major peers over the last 24 hours of trading while the EURCHF tested 1.2400 zone, yet failed to break above. The RSI highlights that the EURCHF is overbought, as we reached 91.3223% versus 70% threshold during yesterday's rally. We note that EURCHF made a bearish start to the day, registering downside correction to 1.2330 zone. We remain cautious on the pair, as the realized volatility stands at its highest levels since the SNB intervention in September 2011 to set 1.20 floor, and remind that the Swiss National Bank was the first in the game, attempting to reverse its excessive currency appreciation.
Today Key Issues:
- 2013-01-16T10:00:00 EUR Euro-Zone December m/m CPI, actual 0.4%, exp. 0.3%, last -0.2%
- 2013-01-16T10:00:00 EUR Euro-Zone December y/y CPI, actual 2.2%, exp. 2.2%
- 2013-01-16T12:00:00 USD Mortgage Applications, last 11.7%
- 2013-01-16T13:30:00 USD December CPI m/m, exp. 0.0%, last -0.3%
- 2013-01-16T13:30:00 USD December CPI y/y, exp. 1.8%, last 1.8%
- 2013-01-16T13:30:00 USD December CPI m/m ex-Food & Energy, exp. 0.2%, last 0.1%
- 2013-01-16T13:30:00 USD December CPI y/y ex-Food & Energy, exp. 1.9%, last 1.9%
- 2013-01-16T14:00:00 USD November Total Net TIC Flows, last USD 56.7
- 2013-01-16T14:00:00 USD November Net Long-Term TIC Flows, exp. USD 25.0B, last USD 1.3B
- 2013-01-16T14:15:00 USD December Industrial Production, exp. 0.3%, last 1.1%
- 2013-01-16T14:15:00 USD December Capacitiy Utilization, exp. 78.5%, last 78.4%
The Risk Today:
EURUSD has sold-off sharply to 1.3264 on Junckers 'dangerously high‘ comment, breaking our short term range floor. The strength of the bears charge caught the market off guard and we are seeing bearish divergence pattern on the daily charts (indicating weakness in trend). However, given last weeks sharp advance, a mild correction should be anticipated. However, the 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 1.3167 (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 aggressive grind higher looks to have peaked at 1.6179 last week– but since then a completely reverse course testing critical support at 1.6004 (solid base due to three failed attempts). As with EURUSD bullish momentum has all but faded as the MACD is now threatening to cross the zero threshold. A break of support should trigger a deeper correction to 1.5921. The support zone is located at 1.6039 (uptrend channel high), 1.5958 ( 28th Nov. low), 1.5930 (100d MA), 1.5826 (15th Nov low) 1.5745/53 (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 1.6180 (10th Jan high), 1.6340 (2nd Jan high) and 1.6454 (29th Aug '11 top).
USDJPY's has followed the pattern of the EURUSD and posted significant bearish divergence pattern on the daily charts. The reversal is showing no sign of slowing and is currently trading at 87.89 lows. The divergence could put us down to 86.64 but given the overstretched condition we see this as a healthy price correction and would favor reloading longs positioned on dips for a challenge of 90.00. On the downside, support is eyed at 86.64 (27th Dec high), 85.54 (5th April high), 84.23 (15th march high), 83.67 (13th Dec high), 83.10 (downtrend top), 81.50/69 (15th Nov. high & 28th Nov. low), 81.00 (16th April pivot), 79.06 (9th Nov low), 78.75 (8th Oct high), 77.94 (Symmetrical triangle floor), 77.12 (13th Feb low) then 76.03 (3rd & 17th Jan low). Above us, minor resistance remains at 89.35 (11th Jan high), 89.74 (21st June high), 90.00 (psychological), then 92.09 (11th June high).
USDCHF has peaked just above the 100d MA at 0.9334 in a very aggressive move. The rally violated downtrend and horizontal resistance plus momentum indicators trending upwards, give the pair a firmly bullish tone. A close above 0.9270 indicates further gains to 0.9385. The next levels of resistance are located 0.9266 (downtrend channel top), 0.9303 (4th Jan high), 0.9385 (7th Dec high), 0.9428 (200d MA), 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 0.9085 (20th Dec low) then 0.9041(1st may low).