| Daily Forex Fundamentals | Written by Saxo Bank | Dec 12 08 08:23 GMT | | |
| EURUSD rally hit 200-week moving average - more to come? US Retail Sales report on tap today likely to add to bad vibes. LATEST HEADLINES
Market Comments Markets have moved swiftly into near panic mode overnight on the failure in the US Senate to pass the $14 billion bailout plan for US automakers. The sticking point was a Republican request that the unions take a paycut next year to bring their wages in line with wages at non-union plants elsewhere in the nation. The fate of GM and Chrysler is now very uncertain. (Our guess is that the lawmakers move to some kind of bankruptcy arrangement that allows the companies to fall into Chapter 11, but that does not let them fall into total liquidation - Americans may be able to stand their most iconic beer brand Budweiser sold to foreigners (Belgian InBev), but they unlikely to be able to stand the idea of their large car brand disappearing forever, with the possible exception of Chrysler. The collapse of the bailout plan took the JPY to dramatic new highs against the USD as global equities plummeted, with USDJPY spiking below 90 for the first time since 1995. EURUSD was higher yesterday, but has dropped slightly since the news broke. Hardest hit have been the commodity currencies, with AUDUSD reversing yesterday's sharp gains and USDCAD already 250+ pips off yesterday's lows (crude spiked higher, then faded and the bailout package failure is considered especially bearish for CAD as auto parts are one of Canada's chief exports to the US.) These latest events are a hard test for the EURUSD rally, which seems to have had a lot to do with the jump in commodities, tremors created. The USD weakened especially sharply yesterday when Russia announced that it was ready to coordinate cuts in oil production with OPEC at a special meeting on December 17. While this created a knee-jerk rally, we should really view this announcement as a measure of desperation and weakness more than anything else. OPEC is a toothless organization in the face of this scary vortex of declining demand worldwide. Still, the long term problem is that the collapse in energy prices is choking off investment in future capacity that will cause tremendous price pressures once oil demand stabilizes and begins to grow again. Right now, demand growth prospects are very far off in the hazy mists of the future. The EURUSD rally yesterday was accelerated by the technical break and especially by events in energy markets and possibly also the Russian ruble situation. Most uncomfortably for our view of the markets, it also seemed to be catching a bid on risk appetite as evidenced by rallying emerging market currencies (complacency makes no sense to us at this phase of the game when things just seem to be getting worse and worse). It is increasingly evident that the ruble will collapse and the Russian central bank seems to be moving into a damage control mode with a stepwise devaluation after having burned through a large portion of its foreign reserves in just a few months. Rumors are swirling about whether Russia may be buying EUR while it lets the Ruble down and the huge bid in gold over the last couple of days may also have has something to do with the ruble unwind, as Russians are apparently out en masse buying jewelry and foreign currency. EURUSD has met the fairly modest upside technical targets we set out for it yesterday (1.3280 Fibo and 200-week moving average at 1.3360) and we now move our view to neutral in light of the market events. It will be interesting to watch whether a new equity meltdown materializes here, and if so, how EUR fares in the equation. It certainly has reached very elevated levels across the broader market, except for EURJPY, which saw a sharp reversal in the Asian session (more on that below). Equities have taken a beating overnight after recently doing an amazing job of showing resilience lately in the face of some very ugly data, but it appears that last nights bailout package failure is serving as a reality check. Note the weekly initial jobless claims number out of the US yesterday, which, at 573k shows an alarming further acceleration in job losses from already elevated levels. Today we have US Retail Sales and the news will inevitably be bad there (expectations already looking for only slightly better than last month's near record drop). Seems like the complacency in the market has been shaken a bit here and we risk larger moves again in currency-land - beware the volatility and stay careful out there. Charts: USDCAD and EURJPY USDCAD: CAD could be at the epicenter of market activity today due to CAD's sensitivity to the US auto industry. Yesterday saw the technical capitulation below the very clear 1.2450 line of support, but now we've already back above that level again this morning. We'd still like to see the pair close today back above the 1.2550 level to call a full reversal here, but the way winds are blowing at the moment, we may be setting up for a test of 1.3000+ here soon if the mood across markets remains sour. Energy prices are another variable worth watching in this equation.
EURJPY: reversed sharply after breaking recent resistance levels. This may be the signal that the downtrend is ready to resume. The next key support area that must fall is the 116.50/116.00 are that proved so resilient the last time around.
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Friday, December 12, 2008
Hardest Hit Currencies Are AUD And CAD On The News. Time To Buy USDCAD Again?
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