The EUR staged a rally yesterday as European finance ministers met in Brussels to discuss new budget rules and the Greek debt swap plan. In a familiar pattern, Europhoria seems to grip the markets every time officials meet to discuss the debt crisis and the EUR rallies. Our expectation that history would repeat itself and the EUR would once again fall after the optimism surrounding the meetings dissipates is eventuating. The region’s finance ministers have failed to agree on the Greek debt swap deal and are calling on a greater contribution from debt holders. The EUR has fallen from a high of 1.3065 during the Asian session to as low as 1.2988 during the European morning.
Germany has proposed the idea of combining the temporary and permanent rescue funds in an effort to reinforce the funds and boost resources to them. Meanwhile, a move by European finance ministers to provide greater debt relief to Greece by calling on investors to accept a lower interest rate on exchanged bonds is setting up a possible fiery situation at the next EU Summit on January 30. All the event risk in the markets has finally caught up with the riskier currencies with the Australian dollar falling more than a cent from yesterday.
Equity markets in the US closed flat yesterday as investors took time to evaluate the reasons for three consecutive weekly rises in stocks and caution still surrounds the debt crisis in Europe. The S&P 500′s 14 day relative strength index has stayed above 65 since mid January and recording its strongest run in almost a year. Asian markets were largely subdued with many closed for Chinese New Year celebrations. The Nikkei closed 0.22% higher while the ASX 200 closed flat. European bourses have lost 1% mid session as negotiations over the Greek debt swap deal stall.
Commodities News
Commodity prices rose yesterday lead by a rise in crude and copper futures with the CRB index closing 3.67 points higher at 313.58. WTI crude, after surging on news that the EU has agreed to a ban on Iranian crude imports, has since fallen 0.45% to $99.10. Precious metals have eased slightly with gold lower by 0.45% to $1,671 while silver has lost 0.25% to $32.20. Soft commodities were broadly lower while copper has lost 0.75%.
GOLD
GOLD moved firmly higher yet again in offshore trade as short covering in the Euro coupled with contin-ued gains in equities is seeing demand remain strong for commodities. USD weakness is helping this move and as we have said before, as soon as volatility calms and the Euro can post some gains we should see gold prices tend higher again and this is exactly what is happening. We may also be seeing a rise as tensions between Europe, the US and Iran intensify after a European embargo on Iranian crude imports was agreed to last night. Gold finished US trade higher by 0.80% at $1,677. Another great night for the precious metals space and gold man-aged to catch up with some of silvers recent gains. Gold is now up against downtrend resistance at $1,680/81 and if we can see a clear break then $1,700/02 is the next big hurdle. We do not want to get ahead of ourselves but a break of the latter and then $1,750 and $1,800 come into play of which $1,800 is major level for gold. The USD remains weak, demand remains robust and improving conditions are seeing demand increase as investors are still not involved in this equity market rally. Gold should continue to rise until the US raise rates which look like still being a long way off. Remain a buyer of dips towards $1,665 with stops under $1,640 in the ST and under $1,600/05 in the MT.
FX News
EURUSD
EUR/USD found support today at 1.2986 as news hit the market that Euro zone finance ministers rejected an offer made by private bondholders to help restructure Greece’s debts as insufficient. From there short-term traders adjusted their positions while they waited for German Purchasing Manager Index for both the manufacturing and services sector. When that was released showing positive figures above expectations Euro drifted between 1.3000 and 1.3030 not knowing decisively which direction to take. For the record, Germany’s manufacturing index came out at 50.9, market expected 49.2 and December was 48.4. The services index grew to 54.5, above 52.6 expectation and December’s 52.4. However by 9.15am London time EUR/USD found its top at 1.3061 before drifting down again. At the time of writing EUR/USD is trading at 1.3022. Looks like we may have seen the top for today but the downside may be tested again during London/New York session. We are still eyeing 1.3145 top for the week based on technicals.
USDJPY
USD/JPY finally broke Jan high (77.34) today hitting 77.39 at the time of writing. This may be on the back of news that Bank of Japan cut its growth outlook. Governor Shirakawa and board members lowered the economic forecast to 2 percent from an October estimate of 2.2 percent for fiscal 2012. In addition we heard funds bought large in the run up hoping to trigger stops above 77.40. We think this resistance will not be easy to break hence going short with a tight stop is worth considering if the risk/reward for you makes sense. Technically 76.50 should be quite solid now if not for anything other than the chance of BOJ intervention. The next level on the top side is 78.25.
AUDUSD
AUD/USD fell during the Asia session yesterday to meet the 1.0450 solid support on the back of slightly weaker than expected PPI data but once the European bid tone came around the rallied headed above the 1.0500 option resistance to manage a high of 1.0570during the late US morning. Positive expectations across the markets about Greece and the Bond holders coming to agreements sparked the wave, whilst a positive Dow did the work during the US morning. A retreat back towards 1.0520 has been seen in the af-ternoon as an unnamed Greek official warned about the reports of the IMF cutting Greek lending lines. CB Lending Index is the only data of note for Australia, however, with the focus mainly on the Euro the release should pass quietly. We have changed out short term bias to neutral as the current wave of senti-ment has been stronger than we first expected and could last another couple of days with the current tone. Below 1.0450 with a rush starts the ball down the hill again!
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