MyDayForex: Briefing 121022

1. Review.

I said: (121001) “EURUSD: the bias could be to the downside for the euro next week as fundamental and technical data continue to undermine the single currency. We believe that 1.25 will remain well supported as the ECB’s OMT programme has removed the tail risk that the currency bloc could collapse. We 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.” We settled here.
“GBPUSD: In an environment of elevated Eurozone stress we could see the dollar attract some safe haven demand this week, which could weigh on GBPUSD.” It did.
“USDJPY: we believe we are seeing bottoming behavior in USDJPY and it won't go lower. The USDJPY will move on what happens in the US and not in the Yen side of the equation. ,The JPY will remain sensitive to broader risk sentiment as well as US Treasury yields.” Yes, we are around 78
Bottom line - QE3 or not it won't change the current positive EUR situation materially”.
Trades
Closed EUR and AUD long.

2. Analysis.

"Fundamental analysis"
Sunday: CNY CPI y/y 1.9% 1.9% 2.0%
Monday: USD Retail Sales m/m 1.1% 0.7% 1.2%
Tuesday: GBP CPI y/y 2.2% 2.2% 2.5%, EUR German ZEW Economic Sentiment -11.5 -14.6 -18.2
Wednesday: CNY GDP q/y 7.4% 7.4% 7.6%
Thursday: USD Unemployment Claims 388K 367K 342K, USD Philly Fed Manufacturing Index 5.7 1.3 -1.9
Friday: USD Existing Home Sales 4.75M 4.73M 4.83M
Saturday:
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. If the Fed is going to keep its foot down on the accelerator until the economy recovers then QE could be with us for the long-term, which may keep dollar strength capped and the Aussie, Kiwi and Real fairly strong.

USD: Data out of the US and UK surprised to the upside last week and gave some very encouraging signals that growth may have woken up from its summer slump. T-note yields at 1.8%. Earning season quite good, even with some disappointing data from Google, IBM and Intel.
CAD: Finance Minister Jim Flaherty said that Canada may have to revise down its economic outlook and that Canada is not immune to world economic challenges
EUR: The chief outcome of the EU Summit has been an agreement with Europe’s leaders that the ECB will eventually be the single body responsible for all banking supervision in the Eurozone. Germany solidifying its opposition to using the ESM (the EU500bn long term rescue fund) to directly re-capitalise the banks in Europe. Spain yield lower, Some think Spain may now wait until the next finance ministers’ meeting in mid-November before making a request for a credit line that would trigger the ECB’s OMT programme.
GBP: economic and . labour market produced a positive surprise
JPY:
CNY: good data from China. The growth outlook still faces a few hurdles and should not be greeted by traders with unbridled enthusiasm
Gold: Several of the big banks are currently very bullish on gold. From $2000 to $3000 in the next year or two are their calls. And it is mainly due to the money printing is good for gold price argument. They also know if there is a serious risk off event then gold goes down. Therefore the impression is that they are not only bullish on gold but also on the absence of such a big risk off event.

Id	Driver	Comments	Immanency
1	On-going global recovery	EZ growth low but recovering. 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	Yes
5	QE3	Until unemployment < 7% or inflation > 3% (maybe 2 years)	No
6	Commodity rise	Falling prices are confirming slowdown	No

"Technical analysis"
EURUSD: edging back towards 1.30. 1.2980 is good support ahead of 1.2850
GBPUSD: 1.60 , broken support at 1.6110 then 1.6050 and 1.5980.
USDJPY: flat in the week
AUDUSD: was given a boost by broader risk sentiment as the pair broke above the 200-day SMA and tested above the 1.04. A correction may be due.

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	Short	Short
JPY	Short	Short
AUD	Long	Long
EUR	Long	Long

"Market dynamics”
EURUSD: October flash PMI readings are released next week. The market expects these indices to move towards 50 but not get above this crucial level. But expect the markets to react to any positive PMI surprises from the Eurozone next week (1.31highs). We could be range bound in EURUSD for the medium term unless a big event – a Spanish aid request or volatility in Spain’s bond market – gives the market some direction.
US date due next week, with the key report being Friday’s advance GDP figures for 3Q. Any surprises in the economic data is likely to see the dollar respond more the impact on the risk environment rather than Fed expectations. Therefore better than expected readings may see the dollar softer on improving sentiment while misses could see dollar gains amid risk aversion.
GBPUSD: In an environment of elevated Eurozone stress we could see the dollar attract some safe haven demand this week, which could weigh on GBPUSD.
USDJPY: we believe we are seeing bottoming behavior in USDJPY and it won't go lower. The USDJPY will move on what happens in the US and not in the Yen side of the equation. ,The JPY will remain sensitive to broader risk sentiment as well as US Treasury yields.
Key events:
Sunday:
Monday:
Tuesday: CAD Overnight Rate 1.00% 1.00%, CNY HSBC Flash Manufacturing PMI 47.9
Wednesday: EUR German Flash Manufacturing PMI 48.1 47.4, EUR German Ifo Business Climate 101.7 101.4, USD FOMC Statement
Thursday: USD Unemployment Claims 366k 388K
Friday: USD Advance GDP q/q 1.8% 1.3%
Saturday:

Prices and Risk on/off view