Market action today:
After a close like we saw last Friday, one might imagine that the market would do one of two things: 1) pick up where it left off and continue to meltdown after risk takers suffered a weekend nervously pondering their positions, or 2) decide that the huge dip - the worst point drop in some of the major equity indices since last March in some cases - is a great timing opportunity for going long risk. Instead, we get neither - simply a day of the market holding its breath and twiddling its thumbs. The fact that risk bulls are still cowed enough that they haven't rushed into to buy the market tilts the odds a bit against their favor, perhaps.
After a close like we saw last Friday, one might imagine that the market would do one of two things: 1) pick up where it left off and continue to meltdown after risk takers suffered a weekend nervously pondering their positions, or 2) decide that the huge dip - the worst point drop in some of the major equity indices since last March in some cases - is a great timing opportunity for going long risk. Instead, we get neither - simply a day of the market holding its breath and twiddling its thumbs. The fact that risk bulls are still cowed enough that they haven't rushed into to buy the market tilts the odds a bit against their favor, perhaps.
The USD, JPY, EUR and AUD went pretty much nowhere by the end of today's trading, much in line with stocks and bonds doing the same. The biggest move on the day was sterling, which pulled strongly higher and took back considerable lost ground against the EUR, once again testing that key 0.8700 in EURGBP. GBPUSD resistance was also blasted away even as the USD was relatively stable elsewhere. A catalyst for the action was tough to come by....
Chart: GBPUSD
GBPUSD rallying strongly on the day after a steep sell-off of late. The retracement level (0.618 Fibo of the recent downwave) and the 55-day moving average are the key resistance here. As long as these hold, the default outlook is relatively bearish.
GBPUSD rallying strongly on the day after a steep sell-off of late. The retracement level (0.618 Fibo of the recent downwave) and the 55-day moving average are the key resistance here. As long as these hold, the default outlook is relatively bearish.
Existing Home Sales
As we mentioned this morning in our outlook for the US New Home Sales later this week (New Home Sales usually have a higher concentration of new home buyers), the housing market activity would likely dip in December due to the anticipated expiry of the first time home buyer incentive. It is surprising, therefore, that the market was at all surprised by the large drop in existing home sales to the approximate level last September.
As we mentioned this morning in our outlook for the US New Home Sales later this week (New Home Sales usually have a higher concentration of new home buyers), the housing market activity would likely dip in December due to the anticipated expiry of the first time home buyer incentive. It is surprising, therefore, that the market was at all surprised by the large drop in existing home sales to the approximate level last September.
A renewal of the home buying tax incentive has been in place since it "expired" on the first of December, and the renewal included a one-time tax break for all homebuyers (who have owned their homes for at least five years, whereas the original incentive was for first time buyers only), we are likely to see a strong resurgence in the data already in January, when the weather turned milder and when new buyers might have started responding to the new incentive. The eternal question is how much these incentives are cannibalizing forward demand - which we won't know until the May data, since the home buying tax credit incentive expires at the end of April.
Looking ahead
Have a look at this morning's preview of the rest of the week's data for a rundown on the major event risks coming up for the rest of the week.
Have a look at this morning's preview of the rest of the week's data for a rundown on the major event risks coming up for the rest of the week.
A note on weekly pivots
A couple of the weekly pivots were in play today - here we note the levels for these pivots this week as they may serve as a turning point if the USD fails to rally. Remember also that the dollar index has been pushing at its 200-day moving average, so a strong close for the greenback would take out this key resistance level. We're finely balanced on a fulcrum here, it seems.
A couple of the weekly pivots were in play today - here we note the levels for these pivots this week as they may serve as a turning point if the USD fails to rally. Remember also that the dollar index has been pushing at its 200-day moving average, so a strong close for the greenback would take out this key resistance level. We're finely balanced on a fulcrum here, it seems.
Weekly pivots this week:
- EURUSD - 1.4194 (right at the high today)
- USDJPY - 90.50
- EURJPY - 128.17 (within a couple of pips of the day's high)
- USDCHF - 1.0380 (minor break attempt today did not succeed)
- GBPUSD - 1.6218 (taken out by today's rally, but as pointed out above, more interesting levels await here)
- AUDUSD - 0.9090 (served as resistance today)
- USDCAD - 1.0477
- Be careful out there.
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