EURUSD Strength Persists on LTRO repayments

Forex News and Events:

The Asian session started the week with optimism over good data out of China and satisfactory LTRO repayments out of Euro-Zone. EUR made a slight correction over Friday’s rally, while JPY tested new highs at the week-opening. The majority of Asian stock indexes rallied overnight, while US stock futures added to Friday’s positive momentum. As the World Economic Forum in Davos came to its end, the focus of the week shifts to FOMC meeting (January 29 – 30th) and US major economic data release is scheduled this week.

Friday’s LTRO announcement eased the concerns over the European sovereign debt crisis, pushing the EUR to its highest level over the last year. EURUSD is currently at 50.0% retracement of April 2011 - July 2012 collapse. As the strong EUR raises worries among European leaders, the ECB’s Asmussen commented over the unilateral FX moves, slacking EU reforms. Despite Cyrus’ rating cut by two levels (Fitch), ECB’s Luc Coene argued that further easing is not necessary. Technically, we see further upside in EURUSD in the short-run, yet fundamentally, the LTRO has not been a major achievement on the battle against the debt crisis.

Davos: No Criticism against Manipulation over Yen

In Davos, the World Economic Forum came to its end. The Japanese FinMin Aso announced that no criticism was done about the currency manipulation regarding the Yen, while the EconMin defended BoJ, saying that the Yen weakness is up to the markets. According to Aso, BoJ chose independently to comply with the government to set 2% inflation target in order to boost Japanese growth. Yen tested new highs early in the session. USDJPY hit 91.26, EURJPY surged to 122.91. According to RSI, the USDJPY is still hovering around the oversold limit, yet we believe that last week’s correction helped the pair to take a short breath, before rallying towards its new highs.

BoE’ Carney sees “More Monetary Stimulus”

Amid disappointing GDP figures out of UK, BoE head Mark Carney gave insight for further monetary stimulus, despite concerns regarding the inflation higher-than-targeted. GBPUSD weakness broadens, as the currency reached its lowest level since August 21th, 2012. The Sterling slipped under its 200-day MA against USD, pushing further the negative trend since the beginning of the year. Technically, the sterling weakened too fast; the RSI points 28.45% (under 30% oversold limit), thus we should see some consolidation in the coming days, yet we keep an eye on Carney speaking in Zurich today (at 15:00 GMT), expected to sound somewhat dovish.

Today's Key Issues (time in GMT):

2013-01-28T08:30:00 SEK Dec household lending; last +4.6% y/y.
2013-01-28T08:30:00 SEK Dec retail sales, actual 1.2% m/m , exp. +0.3% m/m, last +0.3%
2013-01-28T08:30:00 SEK Dec Retail Sales, actual 2.5%, exp. 1.4%, last 0.9%
2013-01-28T08:30:00 SEK Dec trade balance, actual SEK0.7B, exp. 5.5B, last SEK3.6 bln
2013-01-28T09:00:00 EUR ITA Jan consumer confidence index, actual 84.6, exp. 86.0; last 85.7.
2013-01-28T09:00:00 EUR Dec money supply M3, actual 3.3%, exp. +3.9% y/y; last +3.8%.
2013-01-28T09:00:00 EUR Dec M3 3-mo average; actual 3.7%, last +3.4% y/y.
2013-01-28T09:00:00 EUR Dec private loans, -0.7% y/y eyed; last -0.8%.
2013-01-28T10:00:00 EUR ITA Dec wage inflation, actual 0.1%, last +0.1% m/m
2013-01-28T10:00:00 EUR ITA Dec wage inflation, actual 1.7% , last +1.6% y/y.
2013-01-28T13:30:00 USD Dec durable goods orders, +1.8% m/m eyed, IFR +1.3%; last +0.8%.
2013-01-28T15:00:00 USD Dec pending home sales index, +0.3% m/m, IFR -2.0%; last +1.7%
2013-01-28T15:00:00 USD Dec Pending Home Sales m/m, exp. 0.1%, last 1.7%
2013-01-28T15:00:00 USD Dec Pending Home Sales y/y, exp. 12.5%, last 8.9%
2013-01-28T21:45:00 NZD Dec Trade Balance, exp. NZD-105M, last NZD -700M
2013-01-28T21:45:00 NZD Dec Exports, exp. NZD 3.98B, last NZD 3.81B
2013-01-28T21:45:00 NZD Dec Imports, exp. NZD 4.13B, last NZD 4.51B

The Risk Today:

EURUSD EURUSD has corrected marginally, falling to 1.3430 low on profit taking. However, last week bullish rally reached a peak of 1.3479, just a stones throw from our 1.3492 target and there is scant evidence that demand is easing. Bullish 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 1.3492 (2012 high) then 1.3550 (2nd Dec reaction high). The next support is located at 1.3404 (14th Jan low), 1.3256 (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 GBPUSD prices continue to soften, with the bearish pressure bringing us back down to 1.5716 levels (taking-out our 1.5758 target) at the start of the European session. In the near-term the current recovery rally seem to feel capped. However, in the mid-term bearish momentum / trend indicators should pull the currency down to 1.5574. 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), 1.6007 (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 Last week USDJPY surged to new yearly highs at 91.22 as the uptrend still reigns supreme – with very few pullbacks or pauses along the way. We are now seeing profit taking pushing the pair lower to 90.58. In the mid-term despite the ballistic, one-directional rise we think fundamentals have set the course (defying stretch conditions) and expected an extension target of 92.49 Above us, minor resistance remains at 91.22 (Jun 2010 high) then 92.09 (11th June high). On the downside, support is eyed at 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).

USDCHF USDCHF sell-off extended to lows of 0.9222 overnight, but it now appears that bids ahead of 1.5869 (10 Nov high) are stalling the downside progress. The first levels of support should be located at 0.9214 (17th Oct low), 0.9085 (20th Dec low) then 0.9041 (1st May low). The next levels of resistance are located 0.9304 (100d MA), 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).

Resistance and Support: