Weekly Briefing 120917

1.  Review.

In the last 10 days EURUSD is up 600 points, the S&P 500 is comfortably above 1,450 and Brent crude oil is testing $117 per barrel and may test $120 in the coming days. Chief drivers have been stimulative monetary policies from the Federal Reserve in the US and the European Central Bank in the Eurozone
Trades
None

2.  Analysis.

"Fundamental analysis"
Monday: CNY Trade Balance 26.7B 18.9B 25.1B
Tuesday:
Wednesday : USD Trade Balance -42.0B -44.2B -41.9B
Thursday: EUR German Constitutional Court Ruling, USD PPI m/m 1.7% 1.1% 0.3%, USD FOMC Press Conference
Friday: USD Core CPI m/m 0.1% 0.2% 0.1%, USD Retail Sales m/m 0.9% 0.7% 0.6%, USD Prelim UoM Consumer Sentiment 79.2 74.1 74.3
Saturday:
Sunday:
Both ECB and FED have pledged “unlimited” support to sort out their respective problems and for the first time since the financial crisis broke out in 2008 the Fed and the ECB have said they won’t stop until the problems are solved. This is aggressive action from the world’s most important central banks and the markets like it.
Fed: its QE3 programme will purchase $40bn per month of mortgage backed securities until the unemployment rate drops to a level acceptable to the Fed (probably be somewhere south of 7%).
EUR: : there has been a significant reduction in the tail risk of 1, the Eurozone falling apart and 2, the fear of Spain applying for a sovereign bailout as the ECB‘s bond-buying programme won’t actually get triggered until Spain or Italy apply for either a bailout or a precautionary credit line.
GBP:
JPY: 1, the threat of intervention risk from the Japanese authorities and the prospect of the Bank of Japan significantly boosting the size of its Asset Purchase Programme when it meets on Wednesday and 2, the rise in the Treasury yields tends to be positive for USDJPY
CNY:

Id	Driver	Comments	Immanency
1	On-going global recovery	Germany slow down. EZ growth low. US growth may be picking up	Yes
2	FED and BCE	FED will be on hold for until 2015;	No
3	EZ break up	EU dynamic is a longer term dynamic of "putting the structures in place”; Greece exit	No
4	PIIGS	Greece government and Spain banks in focus	Many Yes!
5	QE3	Yes!	No
6	Commodity rise	Falling prices are confirming slowdown	No

"Technical analysis"
EURUSD we are stuck in a range between 1.2250 and 1.2450 although a surprise reading for the August’s PMIs or if the German Finance Ministry’s monthly report suggests that the German economy is deteriorating then we may break out of this range.
GBPUSD managed to get above 1.57 and even test 1.5740– its 200 day moving average.
USDJPY: broken the top of a recent range and broke above the 79.00 figure.
Bottom line - QE3 or not it won't change the current positive EUR situation materially.
Buy the dips if they are there. You can also sell the tops, but be aware that the train is going UP.
I think there is still a lot negativity in the Euro that needs to be priced out. We are not returning soon to mid-low 1.20s, maybe mid-high 1.20s but more likely we settle above 1.30.

Median grid
EURUSD GRID 1.2400-1.3000, north bias
USDJPY GRID 76.00-80.00, neutral bias

Currency	Short term view(technical)	Long term view (fundamentals)
USD	Long	Short
JPY	Neutral	Short
AUD	Short	Long
EUR	Long	Long

"Market dynamics”
Post the QE3 announcement the dollar is looking extremely oversold, so a pullback in risky assets in the coming days would not be unusual. However, we believe that the sell-off, especially in EURUSD could be fairly shallow due to the ECB action to reduce credit risk in the currency bloc (see more below). We believe this pair could trade in a 1.28- 1.35 range until the end of the year
EURUSD
GBPUSD: GDP reading: But if the data follows retail sales and the labour market higher then we could see sterling have another stab at 1.5740.
USDJPY: It is natural for USDJPY to react to a move in Treasury yields, also as market and sovereign risk levels have dropped then the yen tends to get sold off. Thus, the move higher in USDJPY is perfectly normal at this stage..
Key events:
Monday
Tuesday: EUR German ZEW Economic Sentiment -19.4 -25.5
Wednesday: USD Building Permits 0.79M 0.81M, CNY HSBC Flash Manufacturing PMI 47.6
Thursday: EUR German Flash Manufacturing PMI 45.4 44.7, USD Philly Fed Manufacturing Index -4.1 -7.1
Friday:
Saturday:
Sunday:

Prices and Risk on/off view

RORO (30): +1.21 (0.63)