Yen weakness and dollar strength have dominated throughout the European session. The G-7 statement omitted any reference to weakness in the Japanese currency, prompting the yen to fresh all-time lows against the euro (158.99) and two-week lows against the dollar (122.09). Friday’s Hawkish remarks from Fed officials Pianalto, Poole and Fisher, about inflation remaining above the comfort level, and this weekend’s statements from U.S. Treasury Secretary Henry Paulsen reiterating that a stronger dollar is in the U.S. interest, have also helped boost the greenback. The exception continues to be the Canadian dollar, which continues to accumulate strength against the greenback, prompted by the combination of a stronger than expected jobs report and oil’s close at $59.89, the highest close since Jan. 2.
Oil prices are down $1.10 to $58.62 on profit taking from Friday's five-week highs, and expectations that plentiful supplies are sufficient to absorb the current cold front in the Northeast United States.
This week proves a busy schedule of indicators and events for all financial markets. On the data side, U.S. markets await reports on U.S. trade, retail sales, TICS, industrial production, Philly Fed and housing market index. Wednesday and Thursday will include Fed Chairman Ben S. Bernanke’s testimony to Congress as well as the Fed’s semi annual report on monetary policy. Germany’s ZEW survey and Euro zone fourth quarter gross domestic product (GDP) on Tuesday, and the Bank of England’s (BoE) Quarterly Inflation Report on Wednesday will also be highly influential.
EUR/USD eyes 1.2920
Although the bulk of the EUR/USD downmove seems to have been charted today in the European session, we see room for further downside towards the 1.2920 support at which we expect emerging bids. Key foundation remains bolstered at 1.29, backed by 1.2880. For the day, we expect interim resistance to act at 1.2980, followed by 1.30 and 1.3030.
USD/JPY unable to sustain post G7 gains
Despite the jump in USD/JPY to the 122 figure, selling is currently underway, suggesting a bearish daily hammer candle. There was no surprise in the G-7’s omission of any reference to yen weakness. Yen traders now shift attention to this week’s fourth quarter GDP report, which is expected to rise by as much as 0.9% q/q following a 0.2% increase in third quarter, due mainly to a strong rebound in consumer spending.
We expect the pair to continue retreating towards the 121.50—38% retracement of the 120.98-122.02 move. Prospects for further selling towards the 121.20 territory remain considerable before end of session. Upside capped at 121.75-80, followed by 122.
CAD strength defies oil
The Canadian dollar extends Friday’s strength by dragging USD/CAD to three-week lows at 1.1711 on fresh optimism with Canada’s economy and the notion that a soft landing in the United States will diminish chances of a rate cut by the Bank of Canada. CAD manages to stand out and rally across the board as oil prices continue their rebound of the past four weeks, opening further downside in the USD/CAD pair. Strong resistance at the 1.17 figure is enforced by the 38% retracement of the 1.1429-1.1874 move. Subsequent foundation stands at 1.1680 and 1.1650. Upside capped at 1.1740
Aussie extends U-turn down under, eyes 77.00
Our long-term bearishness in the Aussie remains intact. The Aussie continues to lose ground across the board after the Reserve Bank of Australia’s Quarterly Monetary Policy Statement indicated that inflationary pressures are contained, and cutting its 2007 inflation forecast from 3.0% to 2.75%. AUD/USD now targets interim support at 77.00, after which we expect further selling towards the 76.80. Interim buying may push the rate back towards the 77.40s, at which a trend line resistance remains imposing.
Ashraf Laidi Chief FX Analyst CMC Markets US 140 Broadway, 30th Floor New York, NY 10005 (212) 644-4220
(212) 644-4222 fax
a.laidi@cmcmarkets.com
