London Session: EURUSD the stand out performer in a quiet session
By Kathleen Brooks | November 23, 2012 12:14 AM EST
EURUSD has managed to brush aside some dismal PMI readings for the Eurozone and continue its march higher. It is currently getting stuck at 1.2895, which is also the Kijun line on the cloud, and this has thwarted the bulls so far today. We said earlier this week that the bulls had the reigns of the euro, but weren't pressing on the accelerator - today they have decided to give this move some gas and EURUSD is up more than 1% so far this week.
Can euro gains last?
The move seems to be pre-empting Greece receiving its next tranche of bailout funds at the next EU finance ministers meeting on Monday. Eurozone officials dropped some big hints that the money would be released after a hefty two months of negotiations. But can this cross make its way to 1.30? We think that the next leg higher in EURUSD is going to be hard to achieve. Greece may have this tranche of bailout funds but its debt load remains unsustainable. It may have won an extra two years to get its debt to GDP ratio back down to 120%, but so far all that Eurozone officials have done is tinker with the technical details, they haven't addressed the real problems: how to get Greece's finances on a sustainable track and how to get the economy growing again. Its banks are bankrupt, there is no investment and unemployment is at depression-era levels, the future for Greece remains bleak, and we believe this could temper any rallies in EURUSD going forward.
Feeling it at the core
And now problems are spreading to the core. Although the French credit rating downgrade earlier this week was largely ignored by the markets, the French bond market included, the advance PMI readings for November made for bleak reading. The composite PMI picked up a touch to 45.8 from 45.7 in October, but this is still consistent with a decline in Euro-area GDP in Q4 of approx. 0.5%. The worrying thing is that the forward-looking indicators of the German and French surveys were also weak, which does not bode well for 2013. Tomorrow sees the release of the German IFO survey, which is expected to decline further this month. The markets have been sensitive to any German data misses of late, so if the IFO is extremely weak we may see the EURUSD sell off. Key support is 1.2805 - the 200-day sma, then 1.2750.
EURJPY adding to positive euro sentiment
EURUSD may also be getting a boost today from the continued strong performance of EURJPY, which is up more than 2.5% so far this week. We expect this cross to continue to be driven by Japanese political dynamics and the prospect of lots more monetary easing from the BOJ in the coming months as Japan's presumed next PM Shinzo Abe has called for a 2% inflation target (currently Japan is mired in deflation and prices are contracting at a 1% annual rate). It increasingly starting to look like a new paradigm for the yen, however, I am looking for a break of this year's high of 84.20 in USDJPY before making sweeping statements about a weaker yen for 2013.
No one will Gobble Cobble this Thanksgiving!
The US is out due to Thanksgiving. Cobbler and Gobbler are the luckiest turkeys in the land after receiving a reprieve from President Obama last night. The President demonstrated his Democratic credentials by choosing the turkeys to save from the butcher's knife via a Facebook poll. This year's lucky birds will join Liberty and Peace - last year's survivors at a farm in Virginia.
No clear handle on markets with US out
There is no unifying theme in the FX Market today. The euro and the CHF are the strongest performers, while the Aussie, Cad, Kiwi and the US dollar are all weak. Not even strong Chinese economic data can help the Aussie today. It was knocked back after another attempt at 1.0400 earlier. It hasn't been able to break this level since early October, suggesting that the bulls have left the Aussie for now. Interestingly the Aussie is moving in the opposite of its rate spread with the US , which has widened recently and in the past this has been Aussie positive. One explanation for this is that people are using the Aussie, which has been profitable since the summer, as a cash machine (a bit like what they do with Apple stock) and using it to jump on other trends like a weaker yen. We will be watching Aussie closely to see if the uptrend resumes into year-end.
Elsewhere, Brent crude oil is lower today after a ceasefire agreement between Israel and the Middle East; we think that the downside may be capped at $110 in the short-term until the markets are sure that the ceasefire is for real.
Australian-US rate spread and AUDUSD
Kathleen Brooks| Research Director UK EMEA | FOREX.com
23 College Hill | 3rd Floor | London EC4R 2RT
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that FOREX.com is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Services Authority (FSA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan.
Most Popular Slideshows
- Taylor Swift Named People's Best Dressed Stars Of 2014 [PHOTOS]
- Champions League Results: Barcelona Barely Escapes With A Win, Chelsea Fails To Hold On To The Lead [PHOTOS]
- Jeremy Lin, Kobe Bryant Among The Top 5 Overpaid Players In The NBA (Part 1 - Western Conference)
- Reasons Why Michael Jordan Is Better Than LeBron James [PHOTOS And VIDEO]
Join the Conversation
- 2 Reasons Nexus 6 Release Date is Worth the Wait: Android L Data Encryption & Material Design
- Unofficial ‘Samsung Galaxy Alpha’ Can Now Be Purchased For $700 In The US
- Google Now v. Siri v. Cortana – Comparison Of The Three Leading Virtual Assistants
- Xperia Z, Xperia ZL, Xperia ZR Android 4.4.4 KitKat Update Guide
- iOS 8 Jailbreak Release Update: Pangu Devs Will Outrace Evad3rs in Rollout of iPhone 6, iPad Unlocker
- Canada Consumer Alert: Costco No Longer Accepting American Express Cards Starting Jan 1
- Sony Xperia E3 vs. Moto G (2014) – Specifications, Features And Price Showdown