Is this the week we see the pivot lower in both USDJPY and EURUSD? It’s up to FOMC’s Wednesday policy statement and developments in Europe this week to decide, as one wonders whether there are any more logs for Japan to throw on the rhetorical fire for now.
Friday, we had a much larger repayment of 3-year LTRO funds than expected from European banks, though the market seemed to be begging for a large number before the amount was made public, so EURUSD is trading about where it was before that announcement and needs more news to continue higher from here. 1.3400 was a key break and is thus support now. Note that the last two key flatline breaks in EURUSD were met with extended bouts of boring range trading after perhaps one day of following through higher.
Chart: EURUSD
Note that the last couple of breaks of flatline resistance in EURUSD have failed to lead to an explosive move higher. Then again, the rally has been persistent, so bears will need to see the 1.33-1.34 zone give way as well as the rising trendlines of note before having technical arguments for a high being in place.
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Improving Europe numbers?
I keep reading that Europe is “stabilising” or even improving, but I’m having a very hard time seeing this outside of a few confidence surveys that essentially track equity markets (and have been lagging those in the case of the IFO). So the mood seems good, but the data not so good. For numbers like the PMI surveys, we have to remember that these are comparative, so if we get a reading of 30 one month and a reading of 40 the next month, it doesn’t mean things are improving, it means they are getting worse at a slower pace. Most Europe PMI’s remain well under 50, Spanish unemployment just notched another record high, and Italy’s Consumer Confidence indicator for Jan. out today just touched a record low in its 16-year existence, mere weeks ahead of a very shaky election picture. (General election are to be held 24-25 Feb.).
Looking ahead
Italy is out auctioning paper today of 2014 and 2018 bonds, not in huge amounts, but we should always take note of the auctions. Large amounts are scheduled for auction on Wednesday and Thursday. Let’s recall that Italy and Spain’s funding needs this quarter are considerable as EURUSD trades above 1.3400...but bears need the 1.3400 to 1.3300 taken out to get a technical argument in place for further downside.
The FOMC is mid-week and we’ll have plenty more to say about that ahead of the fact, but the thing to watch for there is any sign of increasing dissent and the least whiff of the idea that the Fed will be increasingly cautious if the asset market behaviour outstrips reality to an even greater degree than it is doing at present. Noise on the latter is increasingly the meme, and the USD is already performign very well against the other major currencies, ex Euro, consider where asset markets are trading. The weak AUD and CAD in this environment is telling indeed and one can only wonder where AUDUSD will be trading if we get a short sharp risk meltdown like we saw in August of 2011. NZD finally played a little catchup as well overnight after a weak NZ services survey.
Watch out for US Durable Goods orders up later in the US. Capital spending has been a remarkably weak spot in the US data in recent months.
Economic Data Highlights
- New Zealand Dec. Performance Services Index out at 51.5 vs. 54.2 in Nov.
- Japan Dec. Corporate Service Price Index fell -0.4% YoY vs. -0.5% expected and -0.5% in Nov.
- Sweden Dec. Trade Balance out at +0.7B vs. +5.5B expected and +3.2B in Nov.
- Sweden Dec. Retail Sales out at +1.2% MoM and +2.5% YoY vs. +0.3%/+1.4% expected, respectively and vs. +0.9% YoY in Nov.
- Italy Jan. Consumer Confidence Index out at 84.6 vs. 86.0 expected and 85.7 in Dec.
- US Dec. Durable Goods Orders (1330)
- US Dec. Pending Home Sales (1500)
- US Jan. Dallas Fed Manufacturing Survey (1530)
- New Zealand Dec. Trade Balance (2145)
- Australia Dec. NAB Business Conditions/Confidence (0030)
- Japan Jan. Small Business Confidence (0500)