Market Outlook for January 24, 2012

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!

  

Market Outlook for January 25, 2012

Investor optimism was dented yesterday after European finance ministers failed to agree on the Greek debt swap deal and called for a greater contribution from debt holders. Finance ministers are pushing bondholders for greater debt relief by asking them to accept lower interest returns in the proposed debt swap deal. The stalling of negotiations has fuelled concerns that Greece will fail to make a bond payment due in late March. The EUR fell from a high of 1.3065 during the Asian session yesterday to as low as 1.2948 in early European trade today.

In more sobering news, the IMF has cut global growth forecasts and warned that the “epicentre of the danger is Europe but the rest of the word is increasingly affected.” It cut global growth for 2012 from a September forecast of 4 percent to 3.3 percent and predicted a recession in Europe. The IMF called for an increase in the eurozone’s rescue fund and a more active role from the ECB to address the crisis. In a dire warning, the IMF warned of a 1930′s style worldwide depression unless more countries play their part and identified a possible global financing need of over $1 trillion in the next few years. Inflation in the UK for December fell to its lowest level in 6 months at an annual rate of 4.2% and the economy contracted in the fourth quarter which saw the GBP fall to as low as 1.5528.

Yesterday, US equities fell after advancing for five consecutive sessions as negotiations stalled in the proposed Greek debt swap deal. Furthermore, the IMF warned that there was potential for “political paralysis” in the United States that could lead to an unwinding of stimulus spending. Asian markets there were opened today closed higher while European shares are down about 1% mid session, falling for the second day, as Ericsson and Novartis missed earnings estimates.

Commodities News

Commodity prices managed modest rises yesterday despite growing global growth concerns. However, prices are falling during European trade. WTI crude is down 0.7% to $98.20 on Greek debt concerns expectations of rising stockpiles. Precious metals have also eased slightly with gold lower by 0.55% to $1,656 while silver has lost 0.48% to $31.80. Soft commodities were mixed while copper has lost 0.91%. The market now awaits the latest FOMC statement.

FX News

Today the currency markets preferred to shift its focus on the broader economic outlook rather than the Greek saga.  On the radar are German IFO Business Climate (Jan), Bank of England Minutes, UK GDP and US FOMC rate decision.

EURUSD

 

EUR/USD traded within a narrow range during Asian session (1.3014 – 1.3041) today perhaps due to the Lunar Year celebration.  The same could be expected for the rest of the week for Asia if no surprises hit the market.  At the time of writing, euro spiked up to 1.5050 as German IFO was released. Market was expecting 107.6 but actual came out as 108.3 (last 107.3).  But the spike was very short-lived as it pulled back to the comfortable 1.3020 – 1.3040 zone awaiting for the US FOMC rate decision.  Economists expect no change from 0.25% but the risk may be that if the Fed is more dovish than what the market thinks, then you may see dollar selling in the pipeline.  For the rest of London and New York session, we are still waiting for 1.3145 and support at 1.2983.

USDJPY

 

USD/JPY reached the highest level since Dec 28 at the time of writing to 78.10 in London time.  The headline news was that Japan reported its first annual trade deficit in 30 years raising concerns about its fiscal health.  The data also showed Japan’s exports declined for the third consecutive month – dropped 8% in Dec from a year earlier. JPY traders no doubt will now monitor if the deficit will continue to rise or if Japan’s sovereign rating is in question.  Any hint of that should result in shorting the JPY.  For the rest of the day and subject to FOMC release expect 77.60 (61.8% fib) to 78.25 trading range.

Market Outlook for January 26, 2012

After the U.S. Dollar sold off across the board late in North American trading yesterday, it appeared that some relief was on the horizon, with the Greenback clawing back in early Asian trading on Thursday. This was merely a short-term correction, and by the time European markets opened up, the higher yielding currencies continued to surge.

Ahead of yesterday, the U.S. Dollar was primed for a strong year; after the ill-advised policy decision, one that does little more than buy time for banks to shore up their balance sheets, the U.S. Dollar is poised to be one of the worst performing majors in 2012. The implications of the Fed’s decision go beyond this year, however. Now, with low rates indicated for the next two years, the groundwork for the American Lost Decade – no different than Japan’s – has been laid.

Of interest has been the price action displayed by gold, which has surged through the $1700 per ounce mark and maintained its gains ahead of trading in New York. To me, this is a clear indication that market participants are worried about the U.S. Dollar losing its value substantially over the next few months. The key to watch would be the short-end of the U.S. Treasury yield curve: if these rates turn negative, the demand for precious metals will pick up.

Commodities News

Overall, the commodity currencies, mainly the Australian and New Zealand Dollars, are up big on the day, pacing gains against the Greenback ahead of trading in New York. The European currencies were also slightly firmer, though it’s worth noting that they continue to lag the higher yielding currencies, as expected. With more easing expected out of the Bank of England and the European Central Bank, this is a trend that is expected to continue over the coming months.

FX News

EUR/USD
 

Yesterday’s move does feel like exhaustion but exhaustion can last several days. Support is 13135 and 13060 and the next upside objective is the area that surrounds 13200 (12/21 high, 11/25 low, measured levels at 13230/40).

USD/JPY

From last night – “The USDJPY reversed just shy of the 11/29 high (7828) and 200 day average (7835) today. Price did reach the 3rd standard deviation band on the daily (20 day lookback) for just the 25th time since 2000 and first time since the October 31 intervention. A simple back test shows that shorting the USDJPY at the close of the day in which it reached the 3rd std. dev band (and closing it 5 days later) would have yielded 10 wins and 6 losses (there are not 25 trades because the 5 day holding period results in overlapping days). The wins averaged 96.5 pips and the losses 112.6 pips. Structurally, respect the potential for one more high and a test of the November high at 7828.”

NZD/USD

Is nearing 8240/80 (October high / 161.8% extension of the rally from the November low / 61.8% retracement of the decline from the 2011 high). One would expect strong resistance at this level. Support is now 8195 and 8150.

AUD/USD

The AUDUSD continues to soar and is nearing channel resistance (10700 today) as well as the October high at 10752. 10575 and 10620 are now supports.

Market Outlook for January 27, 2012

In a week that the Federal Reserve announced it would keep interest rates low through till at least 2014 and Bernanke said that policymakers are considering further bond purchases to boost growth, markets continued to celebrate as it appears that more free money is about to be pumped into the financial system. Treasury yields dropped to an all time record low as PIMCO’s Bill Gross predicted a third, fourth and fifth round of quantitative easing. The USD has, not surprisingly, taken a pounding over the week as the QE junkies got the fix they had all prayed for. The EUR is trading higher at above 1.3150.

The surprise news by the Federal Reserve had markets reprice the likelihood of further quantitative easing and sparked a flurry of activity by investors to revalue assets. In our opinion, the reaction in the markets has been overdone and we will likely see a retracement of the USD move in the coming sessions. The impact on riskier currencies such as the Australian dollar has seen it rally to as high as 1.0665 in trade today.

US equities fell yesterday after the Dow Jones rose to its highest levels since May 2008 during the day. Financial stocks where hit by worse than expected new homes sales data which showed a fall in December, for the first time in 4 months. US jobless claims rose while orders for durable goods rose more than expected. Asian stocks closed marginally higher while European stocks are soft as the Greek debt swap negotiations continue.
 

Commodities News

Commodity prices continued to be buoyed by the possibility of further easing by the Fed. The CRB gained for the second day yesterday rising 1.05 points to 317.42. WTI crude oil has risen above $100 despite news of increasing output from Libya. Precious metals have consolidated recent strong rise with gold easing 0.21% to $1,726 and silver losing 0.35% to $33.60. Soft commodities are mixed while copper has gained 0.7%.

FX News

EURUSD

 

EUR/USD spent the day consolidating after peaking at 1.3183 yesterday.  If the technical traders are right, we may have seen the high for a long while and the completion of a technical retracement which began from 1.2624 (16 Jan).  However we’re not totally convinced and we cautiously think 1.3244 may be the top if 1.2950 holds.  Fundamentally, the latest on the Greek saga is that the Institute of International Finance (which represents the creditors) and Greek officials continue negotiations and may well continue over the weekend. On the radar for the rest of the day is US Gross Domestic Product Q4 (annualised), GDP Price Index (1:.30 GMT) and the University of Michigan Confidence survey (14:55GMT). For US GDP, the market is expecting 3% (last 1.8%) and the Price index is expecting 1.9% (last 2.6%). For the U. Mich survey market expects no change from previous 74.  From now until the end of the New York session we see a range of 1.3023 – 1.3170.

USDJPY

 

Today USD/JPY seems to have taken out short term stop losses below 77.00 after peaking at 78.27 two days ago.  The range so far has been 76.88 – 77.49 at the time of writing.  News-wise, Japan’s core CPI fell for the third consecutive month in the year to December (-0.2%).  Japanese retail trade (YoY)(Dec) rose 2.5% against market expectation of 2.1% and the previous of -2.2%.  According to Reuters “The Bank of Japan and the government concede that the economy is in a lull, and they could come under increasing pressure to support it with currency intervention and monetary policy easing as Europe’s debt crisis weighs on external demand.”  With that the expected range for the rest of the New York session is 76.54 – 77.72.

GBPUSD

GBP/USD despite the much weaker than expected CBI Realized Sales data has man-aged to hold onto the recent bid tone of the markets whilst other currencies like Euro and AUD have given up some of the FOMC gains. Talk of EURGBP and GBPJPY flow helping a bid market look to be correct but at this stage we have been unable to confirm due to most of our Australian interbank contacts taking an extra long weekend. During the US morning their was a spike to 1.5730 on the back of weaker than expected New Home Sales but as we close the book on Thursday trade the price is just below 1.5700. It has been a level solid week for the majors against the USD with the FOMC surprising everyone for their calls for a longer period of zero interest rates. However, what we can see into the weeks close in just under 24 hours is a market looking to reduce risk with profit taking from the bulls more than likely going to take the price towards 1.5620 today.

AUDUSD

AUD/USD had a very positive climb during the Australia Day holiday thanks to the expectations that US interest rates will stay close to zero until mid 2014. The lift has been solid as the tone of the short end of the markets was already looking for positive European stories and this was the next best. The solid performance in the Euro and Sterling helped drag the thin liquidity AUD above 1.0540 and 1.0620 offers. Option protective offers ahead of 1.0700 and some stretched corporate orders capped the rally and as the dust continues to settle on the FOMC of Wednesday the mixture of better and weaker data in both Europe and the USA has brought price back towards 1.0600 currently. There is no data for the Australia session and with yesterdays holiday most senior traders would be taking an extra long weekend . A fall below 1.0590 should see intraday names target 1.0550 pivotal support and if that gives way a stop hunt should be seen. Topside resistance should remain ahead of 1.0700 till the end of the weeks trading.

Market Outlook for January 30, 2012

The announcement by the Federal Reserve that it plans to keep interest rates low through till at at least 2014 counterbalanced some weaker than expected economic growth figures last week to keep investor sentiment more optimistic. Furthermore, developments over the weekend suggest that a debt swap deal between Greece and its private creditors is nearing as bondholders appear to have accepted calls by European finance ministers to accept lower interest rates. An undisclosed source cited by Bloomberg has said that creditors are willing to accept an average coupon of as low as 3.6% on new 30 year bonds. The EUR peaked at above 1.3235 in trade on Friday.

However, all is not well in Greece. The IMF’s Christine Lagarde has said, “We’re not terribly positive about what has been done (in Greece)”. There are still fundamental differences of opinion between Greece and other members of the Eurozone over how to manage Greek budget decisions. European policy makers and, in particular, the Germans are calling for the creation of a commission with the power to veto budget decisions by Greece. However, the Greeks have rejected such a plan as they see it as being contrary to national sovereignty. As trading resumed in Asia today it was all one way traffic as markets stumbled on speculation that European leaders meeting today will face difficulties in their efforts to resolve the ongoing debt crisis. The EUR has retreated to as low as 1.3110 while the Australian dollar has lost more than a cent to 1.0550 as the USD surges.

Equity markets rose for the fourth consecutive week last week after the announcement by the Fed which was seen as indicative of an another imminent round of quantitative easing. However, the week has not started so well with Asian stocks closing lower as European leaders meet for another summit. The MSCI Asia Pacific lost 0.8%. In Europe, signs of Greek resistance to outside influence in its budgetary affairs, rising bond yields and the collapse of Spanair has seen European bourses trade down almost one percent.

Commodities News

Commodity prices firmed ever so slightly on the last trading session of the week with the CRB index closing 0.15 points higher at 317.57. However, the trend today has been decidedly lower. WTI Crude oil has lost 0.4% today to trade at $99.15 as International Atomic Energy Agency inspectors arrived in Iran for talks on Iran’s nuclear program. Precious metals also lost ground continue with gold falling 0.7% to $1,723 while silver lost 1.9% to $33.15. Soft commodities were broadly weaker while copper lost almost 2%.

GOLD

GOLD continues to consolidate and move higher after last weeks boost by the Fed Reserve which now sees gold firmly in the $1,700 territory. The range on Friday was $1,713 to $1,740 and it opens the morning near the top of this range. The USD continues to remain weak and whilst there are no other shocks to the financial system gold will continue on its merry way high-er back towards its all time highs above $1,900. We continue to hear of central banks and semi-government organisations diversifying into gold and the very firm bounce off critical support at $1,630 has us confirm our bullish bias on the metal in both the short and medium term. Certainly a retracement towards $1,700 is possible but it will be a temporary move as gold moves aggressively above resistance at $1,750 to target a test of $1,800. For today look for any dips towards $1,720 as an opportunity for those who would like to initiate new long positions. Resistance at $1,655 should hold for today.
 

FX News

All eyes are on the EU Summit today as the Greek debt deal is thought to be largely in place.  Except for USD/JPY the USD gained pretty much across the board on safe-haven demand.  AUD/USD also took some beating after Fitch put major Australian banks on a negative ratings watch.  GBP/USD is also losing momentum after 10 consecutive sessions in positive territory.

EURUSD

Just before New York close on Friday, Euro reached 1.3235 (highest level since Dec) before giving up gains on Monday on the back of short-term profiting taking and anxiety over the EU Summit.  After a five-day advancement in a row, Euro needed to take a breather before deciding on the next move.  Market players seem content with the recent rise but are also wary that the ‘doom and gloom’ is nowhere near over in Europe so a reality check is needed hence re-positioning of their portfolio.  Also on radar today is German CPI – Expected 2% against previous 2.1% (YoY).  Euro may trade within the ranges of 1.3080 – 1.3178.

USDJPY

After reaching 78.27 last week on concerns over Japan’s first monthly deficit in nearly 30 years and a decline in growth outlook, USD/JPY started this week in familiar territory again 76.60 – 76.80.  Other than Japan’s Jobless rate tomorrow, there isn’t much news to trade with.  Perhaps of more interest is the EUR/JPY movement where Japanese officials have recently hinted concerns over its rapid decline against the JPY.  We think the market may test ‘BOJ water’ this week with sub 76.00 and we dare say 75.00 to see if there is any ‘intervention bites’ around.  For the rest of Monday market may range 76.54 – 77.12.

AUDUSD

AUD/USD took the positive tone out of European to retest the recent highs during the European session to find new profit taking offers around 1.0670 enough to cap the mo-mentum. Weaker than expected US GDP 4Q results took the shine off the markets with the AUD falling sharply to 1.0600 before setting a base. The decline was short lived with the markets disregarding Fitch’s downgrading of five Eurozone countries and this was enough to start a short covering squeeze into the weeks close. Early Monday morning selling has the price opening the main part of Asia at 1.0639.  With a lack of Asia zone data the markets will be reading the mixed reports from Fridays US session and the choppy tone looks set to con-tinue for another session. Offers should re-main ahead of 1.0700 at the present time as bears continue to look for resistance to sell into whilst the bulls are happy to sit and wait at present. 1.0450 still remains the pivotal level on the downside at this stage.

Compass Global Markets

Market Outlook for January 31, 2012

Chancellor Merkel indicated yesterday that there may be a delay in finalisation of a debt deal for Greece by saying “we won’t have a thorough discussion of Greece because the troika is in Greece and we don’t have a result of the talks with the banks.” Fundamental cracks are appearing between Greece, where opposition is growing to German led calls for increased oversight and veto powers for Greek budget decisions, and other European leaders. European leaders want to be able to enforce budget decisions on the Greeks while the nation see such moves as an attack on their sovereignty.

President Nicolas Sarkozy of France said yesterday that “Europe is no longer at the edge of the cliff.” The question has to be ‘what has changed since Europe was at the edge of the cliff?” We fear not much. Certainly markets have been less volatile in response to news developments in the new year. However, even as European leaders work towards rules that are designed to bring about greater fiscal union and budgetary control, member states such as Greece want to play by their own rules. The talk is becoming increasingly tough with the the economic spokesman for Merkel’s Christian Democratic Union saying, “The free lunch is over: no external controls, no money.” European history shows that the continent is least united when nations try to exert their influence on each other. Attempts to “unify” the continent have always led to conflagration.

Yet markets have been once again been gripped by europhoria surrounding EU summits and more announcements surrounding plans to save Europe. European Union leaders meeting in Brussels have agreed on a fiscal treaty that will allow for action against high deficit states and calls for members to introduce legislation to limit budget deficits. Markets have rallied on the news even though these reforms actually do nothing to resolve the current debt crisis. Britain and the Czech Republic have declined to sign the pact. The EUR has rallied above 1.3200 after having traded closer to 1.3100 in early Asian trade.

Equity markets have recovered from a soft start to the week with Asian shares rising on optimism surrounding the latest EU summit. After falling yesterday over Greek resistance to outside influence in its budgetary affairs, rising bond yields and the collapse of Spanair, European bourses are now higher by 1% mid session today. After losing ground yesterday for the third day as European leaders lectured to Greece over the nation’s second rescue package, S&P 500 futures are signalling a rise in trade today.

Commodities News

Commodity prices moved lower yesterday with the CRB index losing more than 1% to 313.91. Today, there has been a broad recovery. WTI Crude oil has gained 1% to trade at $99.85 as tensions in Iran once again dominate trader’s mentality. Precious metals have recovered from yesterday’s falls with gold rising 0.4% to $1,742 while silver has gained 0.7% to $33.75.  Soft commodities are broadly stronger while copper is higher by 0.8%.

GOLD

GOLD continues to consolidate after last weeks boost by the Fed Reserve which now sees gold firmly in the $1,700 territory. The range last night was $1,716 to $1,733. Gold opens the morning just below $1,730. As we had suspected gold held up much better than other commodities overnight as markets jitters surrounding Europe resurfaced. We took up our own advice to buy the metal on the dip to $1,720 overnight. This position now has a stop loss at entry and we will seek to trail this stop higher as the market continues take gold higher. We maintain our bullish bias in the short term and medium term for gold although we are currently reviewing our view on commodities in general. An escalation of the European debt crisis is increasingly likely and this will have a negative impact on commodities in general. However, even last year we saw both the USD and Gold manage to gain and expect that this trend will continue especially in the event of a meltdown in Europe.

FX News

EURUSD

The Brussels Summit ended yesterday with no favourable resolution for the Greek saga leaving the market showing its frustration on the EUR/USD driving it down to 1.3075.  Apparently German Chancellor Angela Merkel shared the same frustration with the Greek government’s failure to carry out its economic reform.  Euro found its base at 1.3135 during early Asian session and the theme today for Asia was sell dollar.  However moving towards the London session we may see EUR/USD take on a different theme in the form of volatility.  With a whole battery of macro data expected today from the Euro zone, it may be touch and go.  We have German retail sales (MoM); French Consumer Spending (MoM); German Unemployment Change; Italian Unemployment Rate; Eurozone Unemployment Rate.  In New York expect Chicago PMI and more importantly US Conference Board Consumer Confidence.  Euro support is seen at 1.3120 but the psychological level of 1.3000 is possible if all the ‘bad’ stars align.  Top side try for 1.3230.

USDJPY

USD/JPY tested ‘BOJ waters’ as we predicted yesterday when it broke the76.55 base today reaching as low as 76.16.  At the time of writing USD/JPY is trading at 76.20.  We are once again approaching the  post war low of 75.35 prompting Finance Minister Azumi to say “we are ready to act decisively against excessive and speculative currency moves if needed”.  Factors which sent the yen on a three-day rally include industrial production rising more than forecast in December and unresolved Greek debt restructuring which triggered yen buying as a safe haven. In other news the nation’s jobless rate rose to 4.6% in December from 4.5% the previous month.  For Tuesday, we are cautiously bearish on the USD/JPY with top side limited to 77.01 without BOJ intervention or ‘rumoured’ intervention.  Downside 75.76 may be first support level.  Then it will be exciting to see if we will test the post war low.

AUDUSD

AUD/USD finally broke below the 1.0590 support during Monday’s Asia afternoon with the price continuing to fall as the shorter term bulls bailed on positions with the European session providing enough negative signals for the markets to have the bears what looks like in control yet again. Reports that the Greece Bond meetings have stalled and that Greece will also not allow independent fiscal rule helped the decline. Record highs for Portuguese bonds has many fearing Greece round 2. The price bottomed out during the late US morning towards the major support at 1.0525 and as we close the book on Monday the price has recovered to 1.0590 as US equity markets recovered some of its intraday losses.  Private Sector Credit and Nab Business Confidence are due during the late morning and with our expectations for weaker numbers the decline back towards 1.0525 is our favoured option. Minor support does come in at 1.0560 but this shouldn’t be to hard to crack.

Compass Global Markets

Market Outlook for February 1, 2012

Yet again markets were gripped by ‘europhoria’ surrounding the latest EU summit and more announcements surrounding plans to save Europe. European Union leaders meeting in Brussels have agreed on a fiscal treaty that will allow for action against high deficit states and calls for members to introduce legislation to limit budget deficits. Markets rallied on the news even though these reforms actually do nothing to resolve the current debt crisis. Britain and the Czech Republic have declined to sign the pact. After having rallied to above 1.3200 yesterday, the Euro gains evaporated before once again rising in Europe today.

The Dollar Index rose yesterday by 0.2% yesterday as the USD gained across the majors. USDJPY continues to hover dangerously close to post war lows but is still managing to hold above 76.00. The inevitable sabre rattling and war cries from the Bank of Japan will intensify over the next few trading sessions but the question will be is “anyone listening and does anyone care?” In Europe, the dollar is falling as equity markets rise.

Yesterday, equity markets were soft. The S&P 500 closed 0.05% lower for its fourth consecutive loss, albeit small, as economic data failed to meet expectations. Consumer confidence came in lower than expected while the ISM business activity index came in lower than even the most pessimistic forecasts. Exxon Mobil fell more than 2% after reported sales trailed estimates and Amazon will open significantly lower today after profits fell more than 50%. European bourses are higher by almost 2% as manufacturing data from the US to China looks positive.

Equity markets have recovered from a soft start to the week with Asian shares rising on optimism surrounding the latest EU summit. After falling yesterday over Greek resistance to outside influence in its budgetary affairs, rising bond yields and the collapse of Spanair, European bourses are now higher by 1% mid session today. After losing ground yesterday for the third day as European leaders lectured to Greece over the nation’s second rescue package, S&P 500 futures are signalling a rise in trade today.

Commodities News

Commodity prices moved lower yesterday with the CRB index losing 1.6 points to 312.31 with initial gains over Euro-optimism evaporating as US economic data disappointed. In Europe, prices are making a comeback with WTI Crude gaining 0.75% to $99.20 0.35% to $98.45. Precious metals gained with with gold rising 0.5% to $1,749 while silver has gained 1.8% to $33.85.  Soft commodities are broadly stronger while copper has gained 0.8%.

GOLD

GOLD continues to show strong price consol-idation to gain slightly to hold around $1,740. The range overnight was $1,724 to $1,747. The price action played perfectly within our support and resistance levels.  In what is certainly a good sign for the metal, it managed to hold onto gains even as the USD rose and equity markets fell. The strong bounce off support at $1,725 has gold maintaining its short term bullish trend and we expect another retest of $1,750 imminently. We believe that gold’s status as a store of value and as a safe haven will come to a fore this year as prices ac-celerate towards $2000 by mid year. We remain strongly bullish. Last year we saw both the USD and gold perform better than mpst other asset classes and we continue to see the same trend this year. Look for support at $1,720 to be tested today. If this level holds, our short term bullish call on the metal will be confirmed.

FX News

EURUSD

EUR/USD found support at 1.3025 (day low) in early London time perhaps in response to no firm progress being made in the debt restructuring negotiations between Greece and private bond holders. On the other hand, with US interest rates near zero until 2014 it isn’t that attractive to buy USD either in terms of yields.  Hence EUR/USD may be trapped between 1.3050 – 1.3150 until the market finds new information to trade with.  This may come from today’s data out of Europe (Germany PMI, EMU PMI and CPI) and the US (ADP employment change and ISM manufacturing).  We think we may have seen the low for the day but for the topside we like 1.3244 revisited.

USDJPY

USD/JPY continued its five-day losing streak in early London time as it tests the 76.00 big figure.  At the time of writing USD/JPY is 76.05 which is today’s low so far.  We hear there are stop losses (large) below this figure but margin traders are holding the support line at the moment in the hope of grabbing a bargain.  Since the US announced last week that it would keep interest rates near zero at least until late 2014, long term traders are slowly pricing in this factor by selling dollars across the board including selling dollars and buying the yen.  Specifically for today, Japanese exporters and model funds were doing most of the selling.  Again 75.76 wasn’t tested yesterday but the chances are extremely high today, then 75.55 (Oct low).  Watch out for the 75.35 post war low and also watch out for BOJ intervention – real or rumoured.  If that happens expect to see 77.12 in a hurry otherwise the trend is strongly bearish.