The First Battlefield Of The Currency War: The G20 In Moscow

Still waiting for the market to realize that in fact the fiscal cliff problem has not been resolved yet (within the first week of March some important political decisions will have to be made); the market enters the second week of February with a strong expectation mainly focused on data concerning retail sales (February 13th), industrial production, consumer confidence and foreign purchases of American securities (February 15th).

The real highlight however, is the G20 meeting in Moscow during the weekend of February 15th to 16th, an event where the currency war could be at the center of the planning. Already last week, Mario Draghi has stressed the need to discuss monetary policy, but now even China may have interest to accuse the Japanese "enemy" due to a revaluation of the Renminbi against the Yen by more than 25% in 4 months.

THE ECB STOPS THE STRENGTH OF EURO

In Europe, the division between France and Germany on the management of the monetary policy could rise in the coming weeks if EUR/USD will retouch the objective levels of area 1.39/1.41. At the moment, Draghi has dabbed the strength of the Euro, but it is possible that the market will not be satisfied with the words of the Governor of the ECB. In fact, it represents the ideal target of the bullish head and shoulder figure formalized at the end of 2012.

In the short time, we have almost reached a respectable technical projections, area 1.37 on which the two bullish legs 1.31723 – 1.2042 and 1.2661 – 1.3712 are practically equal in wideness. The oscillators show some divergence, but especially the weekly RSI reached 70, an event that requires some caution on EUR/USD and certifies that the entry into the mature stage of the rally. Thus we do not exclude an interest on area 1.30 area in the coming weeks, before a resumption of the bull market. Concerning the macro data, the waiting will focus on the industrial production of February 13th and the GDP of the fourth quarter published on February 14th.


JAPAN IN THE CORNER

Japan is still going to be the leader in the coming week. The meeting of the Bank of Japan will be crucial for understanding the evolution of JPY also due to the resignation of the governor in office. The meeting of the BOJ is expected for February 14th, while on the previous day, the data on the GDP for the fourth quarter of 2012 will be published. The economic recession in the third quarter was 3.5%. In order to complete the macro view on the 15th of February: industrial production and foreign purchases of Japanese securities.

BETTING AGAINST TURKEY

The formalization of the bullish head and shoulder of EurTry is confirmed. The forecasts for this cross are now extremely positive and the weakness of the Turkish lira should push EurTry close to historical highs. The lower target of the head and shoulder is represented by area 2.55, a level that will be presumably reached after the technical break of resistance 2.42. We are far from those excesses that have characterized in the past the primary tops of EUR/TRY (Roc at 30 weeks higher than 30%) and this element strengthens our idea.


LAST WEEK : COMMENT

The graphical behavior of AUD/NZD at the end of the week suggests a temporary exhaustion of the fall. The price pattern is known as three waves of Wolfe and leads us to predict a rebound phase able to take the cross back to 1.26. For this reason, we close the open position of the past week. Instead, we are going to increase the long position of GbpAud, due to the bullish engulfing pattern formalized on a weekly scale.


Emerging countries

India: Industrial production (February 12th), inflation (February 14th)
South Africa: retail sales (February 13th)
Turkey: Current deficit account (February 13th) - Unemployment (February 15th)