Mike Paterson’s daily Forex brief
After a relatively quiet day exacerbated by the US holiday we kicked back into action last night with better than expected Q4 GDP data from China. This was enough to create a more positive sentiment and, with the market oversold of Euros in the short term, we’ve seen a squeeze higher in Asia and early Europe.
EURUSD failed to break back down through 1.2650 yesterday and with talk of the buy orders getting very large between 1.2600-1.2625 it was time to take a look at the sell orders ahead of 1.2700 as traders got a little nervy that the momentum was fading on this drop. The Chinese data provided the ammunition and eventually we were soon stop-loss buying above 1.2710 and 1.2750 to reach a high so far of 1.2771. As I’ve said oft before there’s plenty of sellers around on the rallies still and the 1.2780 is the pivot point from Friday’s rapid fall.
Nothing in these markets goes in a straight line for long and much depends on how over-sold or over-bought the short term are regardless of any fresh news or data. Longer term hedge funds, the so called “real money” players are more likely to ride these blips but nowadays even they, along with the sovereign names (central banks) too will “job” in and out causing even greater near term fluctuations.
Anyhow, this rally/squeeze will not surprise old lags like me (which doesn’t mean I don’t get caught out by them!) but many day traders still short of Euros will not be comfortable if 1.2800 breaks and we can expect further panic buying initially but with the usual suspects selling into it. That’s the pattern of late and I don’t see it changing any time soon.
EURGBP has moved back above 0.8300 (GBPEUR below 1.2048) again leaving 0.8250 firmly drawn in the sand as a support line, and I’ve heard talk this morning this rise was exacerbated by strong M&A (Mergers & Acquisitions) natural demand. EURJPY is also higher having held the key 97.00 level once again. EURAUD however has fallen to new all-time lows as the supercharged Aussie $ gets another boost from the Chinese numbers. GBPAUD is also lower as AUDUSD breaks up through big resistance at 1.0400.
There’s a few sellers of the Pound overall this morning, particularly in GBPUSD ahead of 1.5400, and the inflation data just out will add to that bearish feel still. CPI came in as expected at 0.4% month on month in December but the figure of 4.2% year on year from
4.8% in November is the biggest slowdown since April 2009. The ONS says the fall was driven by petrol, gas and clothing discounts and it’s a widely shared view that we can expect more of the same as the year unfolds. Yesterday’s CEBR report that I mentioned predicted that interest rates would stay on hold at 0.5% until 2016 and it’s not difficult to understand why in this scenario.
Data out shortly includes Eurozone CPI and the German ZEW economic survey while BOE Governor stands up soon to give us his latest views on the mess out there. US traders will return to their desks this afternoon and wonder what to make of the last 24 hours so all in all we can expect a far livelier day than that which began the week.
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