Article / 07 November 2012 at 14:53 GMT

EURUSD induces whiplash: that was quick!

Head of FX Strategy / Saxo Bank

A very compressed sell the anticipation, buy the fact cycle on Obama’s victory thus far as EURUSD underlines the importance of the 1.2880 resistance ahead of the Greek vote and tomorrow’s ECB.

Well, I got the basic idea right before the fact – that an Obama victory would be priced as a USD negative and risk positive outcome, but that this reaction wouldn’t last “for long”. But today’s market just goes to show us all that markets are all about timing, as I don’t claim that I had much of a clue of the time frame for the post election reaction to complete itself. So far, that time frame has been a matter of hours, as the first key resistance level for EURUSD (1.2880 which I outline in this morning’s run through key levels on 4 of the USD pairs) held and the pair absolutely swooned as Draghi came out suggesting that Germany has been hit by the financial crisis as well as after Germany posted nasty Factory Orders recently and Industrial Production numbers today. His negative words possibly indicate a beating of the drum for dovish pronouncements at tomorrow’s ECB meeting, possibly even a 25-bp rate cut, which only a tiny minority are expecting as only a small fraction of a single 25-bp cut is even priced into the next 12 months.

A EURUSD update is now required after the pair went from trying resistance to screaming through support in the space of a few hours today. The downside has been opened up with this forceful move lower and the key resistance now moves down to 1.2825, the 200-day moving average and targets are more or less academic to the downside. My main interest is that 1.2500 level if this downside momentum holds beyond tomorrow’s ECB meeting, as this was the Labor Day week launching pad for the whole move higher and is one of those key round numbers as well. The recent fibrillation around the 1.3000 level shows the psychological significance these levels can have. The really huge one, of course, is 1.2000, which we haven’t durably cracked since – can you believe it considering what the EU has been through over the last few year – 2003. That’s right: two thousand and three. It wasn’t long before that that I remember when the big debate was whether parity could be broken from the low side of that level….



National Bank of Poland eases
The National Bank of Poland eased rates 25 bps as expected and as forewarned, bringing the policy rate down to 4.50%. PLN was rather stable versus the Euro today, but with the Euro pummeled everywhere else, that wasn’t a notable performance. Look for the zloty to weaken rather heavily against safe haven currencies if this move in risk aversion keeps up as this is the first time we’ve seen the bank easing up on policy since 2009and the yield curve is flattening in Poland as economic fundamentals have soured and the country’s external deficits will leave it vulnerable to capital flows withdrawing from the country in the event liquidity goes through a shaky period. Note the 3.23 to 3.25 zone in USDPLN as one of technical interest if the upside continues here.

Looking ahead
As we’ve said ad nauseum, now it’s about the fiscal cliff and it’s back to the future for the EU, where the siege mentality is being reheated for the umpteenth time. In the EU, it’s about Greece and the austerity vote tonight and longer term, how much more Greek society can take, about whether Rajoy waits for bond market signals before requesting a bailout and if so, that point in time sees the flushing sound in the French economy turning into a full scale meltdown and sees the French bond market threatened as well. Then there is the small matter of Italy’s election next spring and the opening notes of the German election season next fall having already been sounded as well.

As for the fiscal cliff, Obama might feel emboldened enough to want to stand his ground as he can always dangle the threat that he has no second term he needs to fight for and playing the “class warfare” and obstructionist card on the Republicans if they refuse to move his way on fiscal cliff negotiations. As well, the Congressional results turned out better for the Democrats than was anticipated, with the Senate possibly adding 2 democratic votes to its majority and the Republicans possibly standing to lose a few seats in the House as well once the votes are tallied, though their majority is still quite solid there.

Note the Australia employment data up tonight in Asia after AUDUSD has gotten a minor case of whiplash that could turn into a more significant trauma for recent Aussie buyers if the employment report is ugly and risk stays off in the next 24 hours.

Stay careful out there – market volatility risks begetting more market volatility after a long period of complacency like the one we’ve just transitioned through.

Economic Data Highlights

  • Australia Oct. AiG Performance of Construction Index out at 35.8 vs. 30.9 in Sep.
  • UK Oct. BRC Shop Price Index rose +1.5% YoY vs. +1.0% in Sep.
  • Spain Sep. Industrial Output out at -11.7% YoY vs. -2.5% in Aug.
  • Switzerland Oct. Foreign Currency Reserves fell to 424.4B vs. 432B expected and 429.3B in Sep.
  • Switzerland Oct. CPI out at +0.1% MoM and -0.2% YoY as expected and vs. -0.4% YoY in Sep.
  • Norway Sep. Industrial Product Manufacturing out at -0.8% MoM and +2.4% YoY vs. +5.5% YoY in Aug.
  • Euro Zone Sep. Retail Sales out at -0.2% MoM and -0.8% YoY vs. -0.1%/-0.8% expe3cted, respectively and vs. -0.9% YoY in Aug.
  • Germany Sep. Industrial Production out at -1.8% MoM and -1.2% YoY vs. -0.7%/+0.1% expected, respectively and vs. -1.3% YoY in Aug.
  • Poland National Bank of Poland cut its base rate 25 bps to 4.50% as expected.

Upcoming Economic Calendar Highlights (all times GMT)

  • US Weekly Crude Oil and Product Inventories (1530)
  • US Sep. Consumer Credit (2000)
  • New Zealand Q3 Unemployment Rate and Employment Change (2145)
  • New Zealand Oct. QV House Prices (2300)
  • Japan Sep. Machine Orders (2350)
  • Japan Sep. Current Account Total (2350)
  • Australia Oct. Employment Change and Unemployment Rate (0030)


Rcernava Rcernava
There is NO doubt in my mind Obama will go to the edge for his reforms, he has vowed to do so.


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Show latest activity
Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail