Weekly Briefing 121029

1.  Review.

I said: “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).” PMI was bad, but the EUR rallied in mid-week.
“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.” Yes, Spain bailout is more unlikely.
“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.” Ok, good GDP reading and small spike of EUR
“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.” Not in short term.
“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.” Rallied on more easing expected, but retraced on Friday.
Trades
USDJPY long

2.  Analysis.

"Fundamental analysis"
Sunday:
Monday:
Tuesday: CAD Overnight Rate 1.00% 1.00%, CNY HSBC Flash Manufacturing PMI 49.1 47.9
Wednesday: EUR German Flash Manufacturing PMI 45.7 48.1 47.4, EUR German Ifo Business Climate 100.0 101.7 101.4, USD FOMC Statement
Thursday: USD Unemployment Claims 369K 366k 388K
Friday: USD Advance GDP q/q 2.0% 1.8% 1.3%
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.
Sentiment drained from the market . The key drivers of lower markets were weak economic data out of Europe, strong data out of the US which threatens to cut QE3 short and weak Q3 corporate earnings.

USD: The S&P 500 has seen 30% of companies that have reported so far miss earnings estimate. Since the tech sector is considered a lead economic indicator the decline in Q3 earnings could precede a sharper slowdown in the broader economy.
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: It doesn’t look like Spain is in any hurry to apply for a bailout (see the European section for more), European data is likely to remain fairly weak for some time. The sovereign debt crisis seems to have lost some of its potency to rattle financial markets in recent months. There is a deteriorating growth picture across the currency bloc and not just in Spain. Eurozone inflation is expected to have declined to 2.5% this month from 2.7% in September when it is released this week
GBP: dealt a blow last week when Q3 GDP data rose 1%, taking the UK out of recession in style. Next week’s October PMI surveys are going to be crucial to the QE decision at the next BOE meeting on 8th November.
JPY: the Price Outlook report will show a reduction in inflation forecasts which underscores the fact that the BoJ is struggling to achieve its 1% inflation target. We expect the Bank to respond with more stimulus in the form of yet another increase to the Asset Purchase Program (APP). A drop in economic activity will weigh on prices which have been indicating deflation for some time
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: always range bound 1.28-1.31. Back towards 1.28. 1.2980 is good support ahead of 1.2850, that resisted.
GBPUSD: 1.60 , broken support at 1.6110 then 1.6050 and 1.5980.
USDJPY: back to 79.6 after breaking 80
AUDUSD: After a correction to 1.024, back to 1.037.

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	Neutral	Long

"Market dynamics”
EURUSD The sell-off in the euro last week coincided with weak PMI data from the Eurozone, thus further declines in economic data could cause more pressure on the single currency. If the data next week is truly horrible then we expect a sharp fall to 1.2800 and then 1.2750 – the low from the middle of September - in the short term. The private ADP report which is due out on Thursday may take on more importance as new enhancements have been made.
GBPUSD: is likely to remain range bound for the short-term between 1.5800 and 1.6150. It is also sensitive to overall market risk, so if we see market sentiment continue to drain then we may test the top of the 1.6065 key support zone.
USDJPY: In the long run, we would prefer to fade yen weakness as increases to the Bank’s APP have not had lasting impacts on the exchange rate. While BoJ action may result in short term yen weakness, we doubt that USD/JPY upside can last without support from higher US treasury yields.
Key events:
Sunday:
Monday: JPY Overnight Call Rate <0.10% <0.10%
Tuesday: USD CB Consumer Confidence 72.4 70.3
Wednesday: CNY Manufacturing PMI 50.3 49.8, EUR Unemployment Rate 11.4% 11.4%
Thursday: GBP Manufacturing PMI 48.1 48.4, USD Unemployment Claims 371K 369K, USD ADP Non-Farm Employment Change 139K 162K, USD ISM Manufacturing PMI 51.2 51.5
Friday: USD Non-Farm Employment Change 120K 114K , USD Unemployment Rate 7.9% 7.8%
Saturday:

Prices and Risk on/off view

Date	CRB	WTI Oil	Copper	Gold	Silver	SP500	Tnote	Bunds	VIX
22-ott	306	90.1	363	1721	32	1433	1.76	1.59	17
29-ott	296	86.1	355	1711	32.1	1411	1.74	1.53	17.8
Difference	-3.27%	-4.44%	-2.20%	-0.58%	0.31%	-1.54%	-1.14%	-3.77%	4.71%

Date	Dollar Index	AUDUSD	USDCHF	USDJPY	EURUSD	AUDJPY	Risk on/off
20/08/2012	79.6	1.034	0.92	79.3	1.302	81.9	-2.62
29/10/2012	79.9	1.037	0.934	79.62	1.293	82.5	-3.89
Difference	0.38%	0.29%	1.52%	0.40%	-0.69%	0.73%	-48.26%

RORO (30): -0.60 (0.27)

3.  Plan
Still waiting to play JPY short trades (78 should be good) and EURUSD long on pullbacks (wait for 1.29).