Weekly Briefing 121112

1.  Review.

I said: “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.” EUR stayed above 1.28 but broke it definitely on Wednesday reaching 1.2702.
“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.” Also JPY gained on risk off reaching 79.07 low.
Trades
USDJPY long closed flat

2.  Analysis.

"Fundamental analysis"
Sunday:
Monday:
Tuesday:
Wednesday:
Thursday:
Friday:
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: many policy details need to be ironed out and we anticipate rhetoric to pick up ahead of the December FOMC meeting which is the last of the year before voting members rotate. Specific targets are not likely to be agreed upon any time soon and the current stimulus program is expected to remain in place for some time.
CAD:
EUR: President Draghi was very clear that there will be no bond purchases through the OMT programme without conditionality. Madrid still managed to sell a 20-year bond, the first bond with this maturity that it has sold in over a year. This doesn’t suggest stress in Spain’s bond market. The real problem begins on 18th January when its first major bond redemption of 2013 is due.
While we think that Greece will manage to stay in the Eurozone for the medium-term, the power balance appears to be shifting away from Athens and towards Brussels.
GBP: growth signals for October suggest that the economy is growing at a flat to weak rate of approx. 0.1-0.2%. Inflation pressures are also starting to rise. We believe the Bank will continue to expect inflation to fall throughout next year, which could open the way for more policy support in 2013. There is a chance that the Bank may ditch QE altogether next year and concentrate on yet more unconventional policy measures that target the economy directly. We will be watching for is any sign of who has the upper hand at the BOE – the QE supporters, or those who view QE as ineffective.
JPY:
CNY: good data from China.
Gold: With both the Fed and Bank of Japan engaging in balance sheet expansion, gold has also regained its safe haven appeal and has performed strongly this week

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
7	US	Fiscal cliff and risk off	Yes

"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	Neutral	Short
AUD	Long	Long
EUR	Neutral	Long

"Market dynamics”
EURUSD: As we start a new week EURUSD is hovering close to 1.2650. Below here is the start of a technical downtrend
GBPUSD: 10-year Gilt yields have trended lower this week as risk sentiment drained from the market, but the Inflation Report could see a reversal back towards the 200-day sma at 1.86%. This could benefit GBPUSD. 1.60 remains key near term resistance.
USDJPY: If communications indicate that the Fed is likely to engage in further balance sheet expansion to buy treasuries, the dollar could weaken and treasury yields may decline. This would likely weigh on USD/JPY as it traditionally has a close relationship to US treasury yields.
Key events:
Sunday:
Monday:
Tuesday: EUR German ZEW Economic Sentiment -10.1 -11.5
Wednesday: USD PPI m/m 0.2% 1.1%
Thursday: USD Core CPI m/m 0.1% 0.1%, USD Unemployment Claims 362K 355K,
Friday: USD Industrial Production m/m 0.3% 0.4%, USD Capacity Utilization Rate 78.4% 78.3%
Saturday:

Prices and Risk on/off view

Date	CRB	WTI Oil	Copper	Gold	Silver	SP500	Tnote	Bunds	VIX
29-ott	296	86.1	355	1711	32.1	1411	1.74	1.53	17.8
10-nov	292	86.7	344	1730	32.6	1379	1.6	1.34	18.6
Difference	-1.35%	0.70%	-3.10%	1.11%	1.56%	-2.27%	-8.05%	-12.42%	4.49%

Date	Dollar Index	AUDUSD	USDCHF	USDJPY	EURUSD	AUDJPY	Risk on/off
29/10/2012	79.9	1.037	0.934	79.62	1.293	82.5	-3.89
10/11/2012	81	1.038	0.948	79.4	1.271	82.5	-6.01
Difference	1.38%	0.10%	1.50%	-0.28%	-1.70%	0.00%	-54.49%

RORO (30): -0.50 (-0.60)

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