Another slow trading day with thin volumes, but at least CNBC Europe provided live coverage, unlike Monday. As the day progressed, risk appetite slowly eased out of the FX market. Equity indices had a mixed morning with shanghai composite posting marginal 0.18% gain and the Hang Seng dropped -0.69%. General uncertainty is still lingering, despite the lack of new headlines. Italian yields continue to trend higher with 10yr yields trading around 6.94%. EURUSD range consolidated further trading between 1.3057 to 1.3076 levels. Gold feels heavy, trading down to $1586 and Silver slipped to $28.58. Oil firmed slightly as Iran issued threats to block oil shipments in response to the US sanctions. On Tuesday, Iran said they would close the Strait of Hormuz, a critical route for a third of the world's oil trade. The reaction was muted due to gulf OPEC nations issuing a quick response by saying they would increase supply to offset the potential loss caused by Iran threat. In the US, the Treasury’s annual report to Congress yesterday, had the report stopping short of labeling China as a currency manipulator, but instead recognized CNY recent appreciation. In other US news, there are reports that by Friday the US deficit will reach within $100bn of its new debt ceiling. According to a Treasury department official the Obama administration will formally ask Congress to lift the nation’s debt ceiling by $1.2 trillion, to $16.39 trillion. Interestingly according to officials the adjusted debt ceiling is expected to satisfy U.S. debts until the end of 2012. We are significantly less optimistic.
Perhaps the most interesting data was the IMM report which showed that outstanding short EUR and long USD positions continue to look stretched. In addition, in the week which encompassed the SNB's decision to not shift the EURUCHF “floor”, traders cut their short CHF holding nearly in half (although the overall position was increased by one- third in anticipation only 4 weeks prior). We were surprised by the number of traders unwinding since the general consensus is that the SNB is likely to move in Q1 2012. But it just goes to show how influential analyst opinions have become as many were convinced after a particular bulge bracket banks research all but guaranteed the inside line to the SNB thought process and a December repeg. The cable also saw traders cut their shorts as official data and price action suggested that Gilts are becoming a safe haven destination for traders fleeing the uncertainly of Europe.
As for today, we have another light economic calendar with the highlight in our eyes to be the Swiss KoF leading indicators read. The indicator is expected to further decline to 0.23 vs. 0.35 prior read. In early Europe, EURCHF has found buyers as the weak indicator is expected to spark another round of verbal intervention from the SNB, then a highly probable repeg. With speculators recently cutting their short positions a surprise to the downside could trigger a rebuild in EURCHF long in anticipation of a Q1 2012 change in SNB exchange rate policy.
GbpUsd The cable continues to grind higher making short work of near-term resistance. Resistance should kick-in at 1.5680 (27th Dec high), 1.5780 (30th Nov high), 1.5805 (21st Nov high), then 1.5880 (61.8% Fibo retracement). Next level of demand will come into play at 1.5570 /90 (16th Dec high), 1.5333 (23rd Sept low), then 1.5272 (6th Oct low).
UsdJpy The pair has spent the last 8 hr in a 6 pip range. USDJPY seems to have gone back to sleep as we predicted. Initial critical support will come into play at 77.45 (daily cloud top), 76.11 (22nd Sept high), then 75.35 (31st Oct low). Resistance can be seen at 78.29 (30th Nov high), 79.53 (31st Oct intervention high), 80.24 (prior intervention high) then 81.48 (8th July high).
UsdChf USDCHF remains stuck in its 0.9300 to 0.9400 range. Next resistance is located at 0.9400 (22th Dec high), 0.9415 (16ht Dec high) then 0.9603 (17th Feb high). Next support region is located 0.9180/ 96 (9th Dec low), 0.9117 (65d MA), 0.9066/71 (30th Nov & 1st Dec low), 0.8963 (14th Nov low) then 0.8923 (8th Nov low).
Perhaps the most interesting data was the IMM report which showed that outstanding short EUR and long USD positions continue to look stretched. In addition, in the week which encompassed the SNB's decision to not shift the EURUCHF “floor”, traders cut their short CHF holding nearly in half (although the overall position was increased by one- third in anticipation only 4 weeks prior). We were surprised by the number of traders unwinding since the general consensus is that the SNB is likely to move in Q1 2012. But it just goes to show how influential analyst opinions have become as many were convinced after a particular bulge bracket banks research all but guaranteed the inside line to the SNB thought process and a December repeg. The cable also saw traders cut their shorts as official data and price action suggested that Gilts are becoming a safe haven destination for traders fleeing the uncertainly of Europe.
As for today, we have another light economic calendar with the highlight in our eyes to be the Swiss KoF leading indicators read. The indicator is expected to further decline to 0.23 vs. 0.35 prior read. In early Europe, EURCHF has found buyers as the weak indicator is expected to spark another round of verbal intervention from the SNB, then a highly probable repeg. With speculators recently cutting their short positions a surprise to the downside could trigger a rebuild in EURCHF long in anticipation of a Q1 2012 change in SNB exchange rate policy.
Today's Key Issues (time in GMT):
- 07:45 EUR France: Maastricht debt, % GDP Q3
- 08:30 SEK Retail Sales, % Nov
- 10:30 CHF KoF leading indicator Dec
The Risk Today:
EurUsd Not much doing in FX. EURUSD continues to consolidate in thin holiday markets with topside minor resistance at 1.3077 (intraday high), 1.3237 (13th Dec high), 1.3456 (8th Dec high), 1.3553 (9th Nov high), 1.3852 (61.8% Fibo retracement). Initial demand is located at 1.3017 (22nd Dec low), 1.2994 (20th Dec low), 1.2945 (14th Dec low), 1.2867 (1st Jan low 11) then 1.2600 (76.4% Fibo retracement).
GbpUsd The cable continues to grind higher making short work of near-term resistance. Resistance should kick-in at 1.5680 (27th Dec high), 1.5780 (30th Nov high), 1.5805 (21st Nov high), then 1.5880 (61.8% Fibo retracement). Next level of demand will come into play at 1.5570 /90 (16th Dec high), 1.5333 (23rd Sept low), then 1.5272 (6th Oct low).
UsdJpy The pair has spent the last 8 hr in a 6 pip range. USDJPY seems to have gone back to sleep as we predicted. Initial critical support will come into play at 77.45 (daily cloud top), 76.11 (22nd Sept high), then 75.35 (31st Oct low). Resistance can be seen at 78.29 (30th Nov high), 79.53 (31st Oct intervention high), 80.24 (prior intervention high) then 81.48 (8th July high).
UsdChf USDCHF remains stuck in its 0.9300 to 0.9400 range. Next resistance is located at 0.9400 (22th Dec high), 0.9415 (16ht Dec high) then 0.9603 (17th Feb high). Next support region is located 0.9180/ 96 (9th Dec low), 0.9117 (65d MA), 0.9066/71 (30th Nov & 1st Dec low), 0.8963 (14th Nov low) then 0.8923 (8th Nov low).
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