Markets Shrug Off Weak NFP & Continues To Buy Risk

Daily Forex Fundamentals | Written by AC-Markets | Jan 11 10 11:15 GMT |

News and Events: Markets seem to have shrugged off the disappointing US non-farm payrolls data, with equity and commodity prices rallying as yields slipped. Friday closed with the S&P up 0.3% and yield curve steepened further, with US 2yrs rates dropping 5bp. Comments from Fed's Bullard today gave risky assets a boost, as he noted major G10 economies monetary policies were to stay exceptionally loose for some time, while liquidity programs would not pose a risk to price stability. In this environment of choppy improvement of global economic data and commitment by central banks to keep rates on the low end, risk correlated trades should continue to perform well, especially within the commodity bloc and EM space. Interestingly, recent CFTC positing report showed a large increase in AUD long positions by 10.6k to 47.1k, illustrating the markets positive view on commodity trades. Last week, the EUR underperformed against the USD, as lingering worries over the sovereign debt situation of EU members such as Greece weighed on the single currency. Meanwhile, the FT cited a senior credit analyst from a major ratings agency, saying that Portugal now faces a credit-rating downgrade unless its government takes real steps to trim its budget deficit. These mounting concerns could hinder the ECB hand in withdrawing stimulus and adjusting policies. That said, we will be looking to trade USD weakness against NOK, SEK, AUD and CHF over EUR and JPY. In China, December's export and import numbers released Sunday came in much stronger than the market expected (exports surged 17.7% y/y) and likely to pick up further in Q1 2010. With China's recovery vital for both commodity and EMs currencies, any withdrawal of stimulus, even efforts to curb speculative behavior in the local property market could cause significant selling (tightening expected in late Q2 2010). In Switzerland , Reuters reported that SNB chairman Hildebrand stated SNB to continue to prevent any excessive appreciation of CHF vs. EUR, saying that the SNB has no exchange rate target and will monitor FX developments very closely. The market reacted sharply to these comment, trading the EURCHF up to 1.4796 from1.4755. Given the SNBs track record on weakening the CHF there is little doubt the central bank will follow through on these threats if they deem warranted. On a side note, Swiss retail sales slipped to 0.6% y/y while November's strong 3.1% reading was revised down to 0.6%, numbers that won't help remove the central banks deflationary concerns Today Key Issues: 00:00 CHF BIS bi-monthly meeting (final day) 08:15 NOK Retail sales, % y/y Nov 3.1 prior 09:00 CPI, % m/m (y/y) Dec 0.3 (1.5) prior 12:30 USD G10 Chairman Trichet hosts a press conference at the conclusion of meeting 17:45 JPY Atlanta Fed President Lockhart (FOMC non-voter) speaks on the economic outlook 23:50 Current account, ¥ trn Dec 1.01 exp The Risk Today: EurUsd Fridays NFP clearly hurt USD bulls. Break above 1.4484 puts focus on 1.4570 (38.2% retrace of 1.5145-1.4218) ahead of 1.4590 high. The critical support zone between 1.4250/80 was solid and the range high at 1.4500 fell easily. markets seem to be adjusting there bearish EURUSD outlook would suggest upside potential over the rest of the month and a return to 1.48. A close below 1.4250 would reinstate a target of 1.4055 GbpUsd Strong reversal above bearish trendline resistance at 1.6150 gives the pair a bullish tone. 200-day moving average at 1.6112 forms first area of good demand, and beyond there expect prior resistance levels to still be in play: 1.6248 (Dec 18 highs), followed by 1.6323 (100 day moving average), and above there the 1.6400 psychological barrier. UsdJpy USDJPY has been trading heavy today, but it still looks like we will remain range bound between the range lows of 91.10 lows and decent supply ahead of 94.00. Risk are skewed to the downside. A break below 91.10 would indicate a resumption of the larger downtrend that has been in play since mid 2007, but this seems like the less likely scenario in our view. Look for bids ahead of trendline support at 91.10 (before 90.60) , and plenty of offers coming in around today's highs at 93.77 to contain the pair. UsdChf Todays strong move thru 1.0225 will have traders watching retracement levels at 1.0115 ahead of 1.0000. On the upside next levels to watch outside the range are 1.0508 key high and beyond there the 1.0700 major resistance (38.2% correction of the move from 1.1970 down to 0.9918). EURUSD GBPUSD USDJPY USDCHF 1.4665 1.6335 95.00 1.0350 1.4600 1.6235 94.00 1.0293 1.4575 1.6195 93.77 1.0245 1.4518 1.6150 92.45 1.0167 1.4410 1.6020 91.10 1.0115 1.4330 1.6000 90.00 1.0045 1.4300 1.5900 89.10 1.0000 S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot ACM FOREX Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.