Market Outlook for January 20, 2012
Markets were upbeat yesterday as more European bond auctions saw bond yields decline. Spain sold EUR 6.61 billion of 2016, 2019 and 2022 maturing bonds against a target of EUR 4.5 billion while France sold 2014 notes at a yield of 1.05% which was down from 1.58% in October. As a result, the common currency surged to almost 1.3000 in late Asia before falling on renewed concerns over Greece. It is testing support at 1.2900 mid session in Europe.
In other Greek news, in the country most famous for goats, olives, and tax avoidance, Greek authorities have arrested a 35 year old woman who ran a clothing company between 2006 and 2010 for tax evasion to the tune of EUR 48 million. The Greek Finance Ministry estimates that total unpaid taxes amount to more than EUR 40 billion which would certainly go some way to meet the nation’s mammoth debt obligations.
Continued strength in US economic data saw equity markets continue their strong run in Asia with the MSCI Asia Pacific rising more than 1%. US jobless claims collapsed to their lowest level in four years and better than expected earnings from Bank of America saw that stock rise more than 2% with strong performances from other financials helping the S&P 500 to close higher yesterday. However, stocks in Europe are trading lower by about 0.5% as talks between Greek officials and private creditors entered their third day.
Commodity prices gained overnight as market sentiment continues to improve but are losing ground in European trade. WTI crude fell to below $100.00 as demand for gasoline in the US fell to its lowest levels in 10 years at only 8 million barrels a day. Precious metals eased marginal with gold falling 0.49% to $1,646 while silver lost 0.39% to $30.40. Soft commodities are mixed while copper has fallen from 4 month highs losing 1.2%.
GOLD has barely moved from yesterday’s opening levels during the Asian session as it shows strong price consolidation trading in a $1,642 to $1,669 range over the past 24 hours. The better than expected bond auction results in Europe, good economic data in the US and a broad weakening of the USD overnight have help to support the gold price and saw it briefly attempt to break above resistance at $1,667. Gold continues to look very bullish at the moment given the current conditions and all of the stars are starting to align for the next big run up in prices which could see the price test all time highs within the next quarter. The rise of the EUR this week as aided the move higher on precious metals. The daily charts are showing the RSI pointing higher and we are now witness to the next push higher. Resistance initially resides at $1,662 and higher up at $1,667. If we can break through these levels convincingly then we should move up to downtrend resistance at $1,690 at first and the up to $1,700/02.
On the week, the USD and JPY made substantial losses against most majors amid positive data coming out of the US, suggesting recovery for the world’s biggest economy. EUR/USD touched a two-week high before a report forecast to show sales of existing U.S. homes rose to the highest in 1&1/2 years. In Asian trading the EUR/USD peaked at around 1.2983, its highest level since Jan 4. In addition the euro has risen 2.3% since Jan 13. Overall the currency market had a very quiet day during Asian session perhaps due to the winding down in readiness for the Lunar new year or that traders are waiting for news as Greece heads into a third day of talks with private creditors on a debt-swap plan. In summation for the week, we have seen euro recover across the board on the back of short covering, technical retracement and stop losses. That said market players are still quite comfortable with the thought that EUR/USD remains bearish as a trend due fundamental factors. However in our opinion and with regards to risk/return ratio, the daily chart seems to indicate that the downward trend may resume on the break of 1.2930.
Again USD/JPY traded within a tight range today during Asian time and early London time 77.04 – 77.31. However, yesterday the JPY (excluding against the USD) suffered the most against the other currencies. This may be in part due to the general shift out of low-yield bearing ‘safe’ currencies and back into those assets with income potential. The interesting thing here is that the JPY fell more against the USD then the traditional commodity currencies like AUD and NZD. On the technical side, the 30-minute chart shows a very nice flag formation. Flags and pennants are perhaps the most common of continuation chart patterns. What this means is that theoretically, USD/JPY should move upwards once consolidation is finalised. With that expected range may be 77.00 to 77.34 (Jan highest and immediate resistance). The dollar has fallen 2.3 percent versus the euro since Jan. 13, and the yen has lost 2.5 percent. The declines would be the biggest for both the U.S. and Japanese currencies since the week ended Oct. 14.
AUD/USD has not been able to benefit in the same way as the other majors mainly Euro over the last couple of days as the talk of M&A activity has decreased and the concerns over the Employment numbers yesterday despite the Full Time Jobs rising 10K the 50K in part time losses causes great concern in December, which historically is a positive. Offers continue to lower as the price tried to follow the majors higher with longer term bears being spoken about as the aggressive sellers at present. The bids and offers are reducing but at the present time the markets looks to be favouring a topside break only because of the bid tone of the Euro. If Euro manages to break above 1.3000 the commodity currencies could see another leg up with AUD possibly back into the 1.0500. This would end our bearish bias for now as we would have to review again. However, what we favour is a break of the 1.0375 support to lead to a test of 1.0340. If these two levels break the bearish market will be in control once again and parity here we come!
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