London Session: USDJPY continues its march higher
By Kathleen Brooks | February 5, 2013 12:40 AM EST
The key mover of the European session so far has been USDJPY. After wobbling a little on Friday afternoon as the market digested what the labour market data from the US meant for the future of Fed policy, the greenback has recovered and USDJPY is the chief beneficiary. It broke above 93.00 at one point today, its highest level since mid-2010. The cross is looking extremely overbought on a daily and weekly basis, however we don't think this signals that a major sell off lies ahead, rather that further gains may be incremental. Indeed, after hitting a high of 93.20 earlier today USDJPY is running into short term resistance. We expect 92.80 then 92.50 to act as support and for any pullbacks to be shallow as we believe this rally has further go in the medium-term and that the Japanese authorities won't ease off the downward pressure on the yen anytime soon.
Spanish political news hits the euro
Along with the yen, the euro is the weakest performer today on a broad-based basis. EURUSD is back below 1.36 after being hit by bad news on two fronts: 1, weekend reports of political tensions in Spain after the opposition leader called for the PM to stand down after reports of fraud surfaced in the media, and 2, Sentix investor confidence rose less than expected in January to -3.9 from -7.0 in December, the market expected a stronger recovery to -1.7. This is a good metaphor for the wider Eurozone: the risk of disappointment is high as the recent rally seems to rely on the stabilisation in the currency bloc to continue.
Interestingly, although Spanish yields have been rising since mid-Jan when they fell below 5%, the euro had been resilient to this and managed to continue to extend gains. Today the euro is declining as Spanish bond yields rise to a touch below 5.4%, their highest level for 6-weeks. Thus, it is unlikely the euro could ignore the effects of rising sovereign risk in Spain in the near term. So far this year Spain has managed to sell debt extremely easily, however the rise in yields could complicate the long-term bond auction due to take place on Thursday.
CFTC sentiment - markets still long euro, but maybe less euphoric
But while the fundamental argument may support a weaker euro, the key to successful FX trading is understanding the current market sentiment. This is where CFTC positioning data comes in handy. It reports non-commercial (i.e., speculative) positions in the euro vs. the dollar. It moved back into positive territory at the start of January, and short positions had declined since the end of November. Interestingly, long positions jumped by 14,000 contracts between the second and third week of January, however the number of long contracts rose by only 6,000 in the last week of January. While this isn't the only source of demand for the euro, it is worth monitoring. If we see speculative interest in the euro start to tail off it could be a sign that EURUSD has reached a top.
Can stocks keep up the pace set in January?
Stocks got off to a weak start in February after the best January performance for more than 20 years for some markets. European markets are down nearly 1% so far today. There isn't too much economic data to give markets direction today, and although stocks have been falling we think that the downside may be limited. Support in the Eurostoxx index is 2,665, the low from mid-January. We could range trade into the ECB meeting later this week between 2,650 and 2,750 - this level saw a shooting star daily candle pattern last week, which suggests a temporary top may be in place.
One to watch: Eurostoxx index - a clear range has developed. A break below 2,665 -the recent low - opens the way for a move back to 2,600 in the short term. Added to this the daily RSI, a key momentum indicator that you can see in the chart below, has also pointed lower, which suggests there could be some selling pressure in the near term.
Eurostoxx - daily chart
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.
Futures, Options on Futures, 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 and commodity futures, 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. Please read Characteristics and Risks of Standardized Options (http://www.optionsclearing.com/about/publications/character-risks.jsp).
Most Popular Slideshows
- Gennady Golovkin Next Fight Options: Canelo Alvarez, Miguel Cotto Or Julio Cesar Chavez Jr.
- NFL MNF: Pittsburgh Steelers 30, Houston Texans 23 [PHOTOS]
- 2014 MLB World Series Game 1: San Francisco Giants 7, Kansas City Royals 1 [PHOTOS]
- 2014 MLB World Series - Game 2: Kansas City Royals 7, San Francisco Giants 2 [PHOTOS]
Join the Conversation
- Chilling: New ISIS Video Addresses Australia; Aussie Teen Delivers Message
- The Pirate Bay Blockade: Cost Of Blocking Websites Like TPB Is Ridiculously High
- Xiaomi Mi4 And MiPad Prices Likely Slashed, Thanks To Rivals Oppo, OnePlus And Meizu
- No Mercy: ISIS, Father Stones to Death Daughter for Alleged Adultery
- iOS 8 Jailbreak Release Date is Doomed as Team Evad3rs Opts Out, Pangu Hits Snag – Report
- Google Nexus 6 vs. iPhone 5S: 4 Important Things to Consider Before Switching to Android Lollipop