Financial Advisor

FX Update: Risk aversion from Friday so far not contagious

Market Comment
Asian and European markets are seeing no follow through on the risk aversion from the US session on Friday, which saw the sharpest drop in equities so far this year, as it appears the rest of the world wants to believe that was merely a bit of profit taking that settled in ahead of a three-day weekend

CHF and JPY: market deaf to central bank comments
The CHF remained strong vs. the market despite the SNB's Hildebrand from an article over the weekend, in which he indicated his belief that the SNB must move "carefully and gradually" to normalize rates since the threat of deflation can not yet be ruled out.   Mr. Hildebrand was also out complaining about the franc's strength, as he promised to "resolutely prevent" any "excessive" strength. The market completely ignored these comments, a further sign of franc strength.  The market also ignored comments from the BoJ's Shirakawa, who was out promising to "maintain an extremely accommodative financial environment." Apparently, the bond market speaks louder than the BoJ at the moment, as the JPY will likely remain resilient as long as bonds continue to rally.

AUD strength - enough already?
Aussie's strength vs. the broader market is reaching unsustainable levels soon, on our view, though with the current bubble mentality in China and in risk in general, it is hard to find a catalyst for Aussie weakness. Still, the contrarian can point to the positioning in the US futures market, which shows AUD longs at a record high since May 2008, which was within a couple of months of the top in the Aussie before its remarkable fall during the late 2008 risk meltdown. Some kind of pivot point may be in the wings for the currency in the weeks ahead considering such extreme positioning.

Charts: AUD and AUDUSD
AUD has reached new highs vs. the rest of the G-10 (below shows the Aussie vs. an evenly weighted basket of the rest of the G-10) - even higher in this instance than it was in the summer of 2008.


AUDUSD has snapped back strongly from attempts to take out last week's lows overnight. Fibonacci followers will note the 0.618 retracement level of the sell-off wave from Friday's mini-meltdown in risk coming in around the highs for today. If those levels are taken out, the focus shifts to the double top resistance points at 0.9330 and 0.9407.



Looking ahead
The US session should see little volatility as markets are closed today for a public holiday. For the rest of the week, we have a fairly light load of event risks on the economic calendar (the US calendar is especially slow this week) as corporate earnings reports from Q4 are likely to receive the most attention. Below are the highlights from the economic calendar:

  • Tuesday: UK Dec. CPI and RPI, Germany Jan. ZEW Survey, Canada's BoC meeting, US Jan. NAHB Housing Survey, BoE's King to Speak, US Weekly ABC Consumer Confidence
  • Wednesday: Australia Jan. Consumer Confidence, Germany Dec. Producer Prices, UK BoE Minutes, Canada Dec. CPI, US Dec. PPI, US Dec. Housing Starts and Building Permits
  • Thursday: New Zealand Dec. PMI, New Zealand Nov. Retail Sales, China Q4 GDP and Dec. Retail Sales, Industrial Production, etc., European Preliminary Jan. Manufacturing and Services PMIs, US Weekly Jobless Claims, US Jan. Philadelphia Fed, US Dec. Leading Indicators
  • Friday: UK Dec. Retail Sales, Canada Retail Sales
Economic Data Highlights
  • New Zealand Dec. Housing Price Index fell -0.9% MoM vs. +0.2% in Nov.
  • New Zealand Dec. House Sales rose 15.2% YoY vs. +41.5% in Nov.
  • UK Jan. Rightmove House Prices rose +4.1% YoY vs. +1.7% in Dec.
  • Canada Nov. International Securities Transactions out at 10.54B vs. 5.25B expected and 5.95B in Oct.
Upcoming Economic Data Highlights
  • Japan Dec. Consumer Confidence (0500)

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