The USD rally is cutting deeper into the recent losses against the European majors and USDJPY took out new highs overnight. Meanwhile, the commodity currencies have actually rallied slightly against the greenback, leaving the likes of EURAUD and AUDCHF and even CADCHF as the highest beta pairs since the Federal Open Market Committee taper announcement as the market is trying to tell us that the taper is no big deal for asset markets and that the risk party must go on.
Chart: CADCHF
The idea from yesterday to “ditch the safe havens” of EUR and CHF is panning out here in the short term, at least, as the market seems to be telling us that asset markets will manage the taper just fine for now. The argument against this view can be found in some of the emerging market currencies, as TRY has been pushed to new lows and other EM currencies look nervous as well. But who would have thought that CADCHF would be one of the highest beta G10 pairs in the wake of the Federal Open Market Committee decision coming into this morning?
The main takeaway is that large-event risks often provide pivot points for major market themes and the long EUR and CHF vs. short commodity currency theme was the strongest one coming into the FOMC. The consolidation could spill into the New Year for a time and may see the safe havens and JPY as the weakest performers against a strong US dollar. Watch out for important Canada data out later today — USDCAD is still focusing higher as long — especially if 1.0650/75 stays in place.
Looking ahead
Norway is out with its December employment figures today after NOK has finally managed to push back stronger against the euro and haltingly against the Swedish krona as well. After yesterday’s EURNOK rally attempt, today may be the day that casts a shadow over the action into the first week of the year, a confirmation of the 8.35-8.55 zone or a capitulation into the lower 8.20-8.35 zone. We’ve got a similar picture for EURSEK, with 8.90/92 the important local support.
Canada’s latest CPI data and Retail Sales release likewise tell us whether USDCAD is ready to push the envelope again above 1.0700 or if we’ll become mired again in the bog of 1.0570-1.0650. I expect an eventual break higher, but the timing is challenging to say the least. Trading tactics are very difficult into the waning days of the year, as many are on holiday and liquidity dries up.
EURUSD looks potentially twitchy and has now pushed down into a key zone of support between 1.3600 and 1.3650. There is considerable risk of an acceleration lower driven by stop-losses and liquidity conditions if the action continues lower today. If we make it to 1.3500 in the coming days, it will look like a strong confirmation of the double top and the R.I.P. signal for the 1,000-pip H2 rally in EURUSD.
Economic data highlights
- UK Dec. GfK Consumer Confidence out at -13 vs. -11 expected and -12 in Nov.
- Japan Bank of Japan leaves 2014 Monetary Base Target unchanged at ¥270T as expected
- Germany Jan. GfK Consumer Confidence out at 7.6 vs. 7.4 expected and 7.4 in Dec.
- Sweden Nov. PPI (0830)
- Italy Oct. Industrial Orders/Sales (0900)
- Norway Dec. Unemployment Rate (0900)
- Canada Nov. CPI (1330)
- Canada Oct. Retail Sales (1330)
- UK BoE to publish paper on weak bank lending (1400)
- Euro Zone Dec. Consumer Confidence (1500)
- US Dec. Kansas City Fed Manufacturing Activity (1600)