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Article / 03 January 2014 at 7:39 GMT

Gaggle of Fed speakers out this evening after USD rally

Head of FX Strategy / Saxo Bank

By John J Hardy

The US data yesterday was generally USD supportive, though the dollar was already rallying before its release and didn’t really respond, suggesting that most of the day's activity was about the calendar rolling into a new year, as risk appetite suddenly crumbled after the late December ramp. JPY crosses, no surprise, corrected sharply lower, suggesting that the JPY remains the best risk proxy among the major currencies on a day-to-day basis. And just as GBPJPY saw one of the steepest ramps higher into the end of last year, it has also been the high beta pair on the way back down.

Elsewhere, while the major Europeans were weak, the commodity currencies remained resilient, with AUD and NZD rallying a bit versus the greenback. It’s virtually impossible for me to extract meaning from their moves, except that Europe/commodity currency trades were perhaps very popular late last year and so when the euro and sterling are under pressure, these currencies do well from a positioning angle. If the risk-corrective environments continue, I would expect their resilience to fade quickly — particularly with concerns over China continuing to brew, and not helped by the latest weakening in the official non-manufacturing survey released overnight.

Trouble in EM
If we look at the emerging markets (EM) currencies, TRY has received the most focus due to the political turmoil there, though EM in general (and especially EM countries like Turkey with huge current account deficits) remain sensitive to both weak risk appetite and higher interest rates — and lately one of those has always been present at any given time. ZAR is also under major pressure for similar structural reasons and has fallen to new lows versus the greenback not seen in years. In fact, if USDZAR closes near current levels (10.64), it will be the highest weekly close since the global financial crisis. Can we imagine where some of these currencies might be trading if we got a real sell-off in risky assets?

Looking ahead
This morning, we have data of interest out of Spain, as the debate on inflation/deflation rages across Europe. The last couple of year-on-year CPI numbers were minus 0.1 percent and plus 0.2 percent. Spain will also release the payroll tally for December today. Interesting to note MISH pointing out that few Spanish believe a recovery will get under way this year (only 17 percent) and only 20 percent believe their situation will improve this year. 

Traders must note the gaggle of Fed speakers this evening at an American Economics Association meeting in Philadelphia. Fed Chairman Bernanke himself will appear at the conference, as will Jeremy Stein, the Fed governor in charge of investigating the risks of Fed policy to financial stability. This is the only speech on the calendar for Bernanke through the end of the month and may be the last major speech under his watch.
Technically, EURUSD dropped to the important support I pointed out yesterday — the 1.3600/25 area, which remains the downside support of note. Elsewhere, it is significant that the GBPUSD rally has corrected this viciously, as noted below.

The cable rally finally faced serious headwinds yesterday and looks a bit challenged, though the rally is only fully compromised locally if the pair cuts lower and perhaps into the 1.6300/50 zone, which would see the last major retracement levels for the local rally taken out.

Source: Saxo Bank

Economic Data Highlights

  • China Dec. Non-manufacturing PMI out at 54.6 vs. 56.0 in Nov.

Upcoming Economic Calendar Highlights (all times GMT)

  • Switzerland Dec. KOF Leading Indicator (0800)
  • Spain Dec. CPI (0800)
  • Spain Dec. Unemployment Change (0800)
  • Switzerland Dec. Manufacturing PMI (0830)
  • UK Dec. Construction PMI (0930)
  • UK Nov. Mortgage Approvals (0930)
  • Italy Dec. CPI (1000)
  • US Dec. ISM New York (1445)
  • US Fed’s Plosser to Speak (1515)
  • UK Bank of England’s Haldane to Speak (1515)
  • US Fed’s Stein to Moderate Panel (1515)
  • US Fed’s Stein to Speak (1815)
  • US Fed’s Lacker to Speak (1830)
  • US Fed’s Bernanke to Speak (1930)
  • US Dec. Vehicle Sales (2200)
  • Australia Dec. AiG Performance of Services Index (Sun 2230)
  • China Dec. HSBC/Markit Services PMI (0145)




Elianto Elianto
Rumors for a LTRO3 from next thrusday BCE Meeting....If happens, I suppose a big impact on 1.15 within next few mounths?
United Overseas United Overseas
Light Me On Fire...)


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