| Daily Forex Fundamentals | Written by Saxo Bank | Dec 08 08 09:28 GMT | | |
| Market trying to keep the rally steam going on US stimulus plan, but latest moves may have more to do with short-term over-bearish market positioning. LATEST HEADLINES
THEMES TO WATCH - UPCOMING SESSION
Market Comments Friday's awful US employment report was truly one for the record books, with more than half a million Americans losing their jobs in November, far worse than an already bad number expected and the worst drop in jobs since the 1974 meltdown triggered by the first oil embargo crisis. Unfortunately, this kind of job loss rate may be sustainable for another two or three months as companies make adjustments after the Christmas season is behind us. Even if Obama moves swiftly to stimulate the economy as all signs show he will shortly after January 20, it will take some time for the stimulus measures to take hold The 'bold' stimulus plan preannounced by president-elect Obama is being given the most credit for helping to give the rally in risk appetite from late Friday a further tailwind this morning. The focus of the plan was on road-building, improvements to schools, improvements to energy efficiency in public buildings, high speed internet, various healthcare related measures and alternative energy. Obama didn't put a price tag on the plan, but the $1 Trillion level is credibly being thrown about. We have a hard time seeing how this is so tremendously bullish for risk. When all you have to do is print money for this kind of stimulus plan rather than actually having to find financing in the open market, why not just make it 3 trillion or 10? Do we really think that printing more money is a sustainable rout to economic growth? This is all very scary stuff for the long run value of the USD and while it may soften some of the GDP downside in coming quarters, it is not healthy for the structure of the economy. In the short run, the greenback's fortunes are still tied to risk appetite, however, and we still see upside for the USD further out once this rally in risk of unknown magnitude hits a speedbump like all of the previous attempts to call a bottom in markets. Economic data this week is rather light, with the first numbers of interest the German ZEW and Bank of Canada rate decision (50 bp cut expected) on Wednesday. Then on Friday, we have Australian employment data, the SNB with another rate decision (50 bp cut expected), and the latest US Trade Balance data. Market action With the reaction to Friday's data the opposite of what one would expect, the market was clearly positioned too aggressively against risk appetite and we are seeing a short squeeze on these positions. That means the currencies that the former weaklings are turning stronger and vice versa. GBP, for example, which was pounded to new record lows against the Euro on Thursday last week, has come storming back and GBPUSD has already punched its way back to the 1.5000 level in this morning's trade. USDCAD headed back to 1.3000 as we expected last week, but the turnaround from that level has given us whiplash - we look at the 21-day moving average with interest for that cross to see if the triple-top is confirmed. As stated above, we have little faith in this rally in risk beyond the shortest term, and the challenge becomes gauging whether we are seeing a rally that peters out today, tomorrow. or not for another week or two. We suspect that this rally has limited legs and would prefer to see signs of reversal by midweek, but we'll keep our minds open for a large countertrend rally if, for example, 1.3000 in EURUSD is achieved and maintained in the days to come. Chart: AUDJPY The old carry crosses like AUDJPY are the ones really bursting out of the gates to start the week, and AUDJPY has even managed to scratch its way back above the 21-day moving average, perhaps setting up a test of the 55-day moving average in coming sessions, a moving average it last crossed in August. But if this is merely a squeeze on the weaker shorts in the market, as we suspect it is, the turnaround could be very quick and sharp at some point soon. Volatility is still very expensive, but one might look to buy options for medium term downside as the rally continues, as vols will almost certainly get cheaper if the rally extends.
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Monday, December 8, 2008
Forex Market Update: Market Gunning For Risk Appetite After Horrific US Employment Report Seemingly Brushed Aside. But Does The Rally In Risk Have Any
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