Forex Market Review And News Calendar For November 19 ~ 23, 2012

This past week was driven once again by risk aversion sentiment as traders remained concerned over the Greece situation and the never ending headlines on the US Fiscal Cliff. By the end of the week, both parties, including Speaker Boehner and Senate majority leader Reid, stated that the talks were “constructive” and a deal can be achieved as long as revenue (tax hike) is accompanied by spending cuts. Equity markets rallied as a result with the Dow gaining more than 100 points off of the session low. In related news, the US weekly initial jobless claims jumped to 439K, well above what was expected, but was quickly attributed to the short term effects from Hurricane Sandy.

In China, positive economic releases did little to correct the risk adverse market despite of improvements in October trade balances and the biggest uptick in industrial production in five months. In related news, China has completed its political transition and revealed new leaders for the next term without incidents; market is now speculating that new economic stimulus may be launched soon…

In Europe, the Greek situation remained unresolved as Monday’s Eurogroup meeting proved to be a disappointment with the primary focus on the Greek debt burden instead of on the main target which is to approve the next aid tranche. Of course, with the Troika official report scheduled on the 17th, it is probably wishful thinking to expect a definitive decision, but the market was genuinely surprised at the end of the day by the differences between Euro Zone Finance Ministers and the IMF on the debt-to-GDP projections, which may lead to potential IMF exit from future aid to Greece and other European nations… EU chief Juncker remained optimistic that a decision would be made at its next gathering on November 20th for the Eurogroup, but other senior officials indicated the final decision could slip to a later date.

In related news, European economic reports remained weak with its Q3 preliminary GDP figures confirming that the continent has officially entered a double dip recession. The declining reading in Germany’s November ZEW economic sentiment index added further selling momentum as problems in the periphery have spilled over to the core economies.

In Japan, the Yen weakened noticeably on mid-week reports that PM Noda hinted he might dissolve Parliament on Friday, November 16th, if LDP opposition pledged to meet certain conditions. The USD/JPY edged towards the 80 handle after Japan LPD (opposition) official Abe was said to have agreed to conditions laid out by PM Noda for snap elections. The LDP is in a position to form the next government, and Abe is known to promote the unlimited easing policy to reach inflation target of 1%; as a matter of fact, Abe has proposed to raise the inflation target to 2%, indicating a more aggressive easing policy than previously anticipated… BoJ is likely to cut the benchmark rate to zero or lower if LDP were to win the snap election.

In conclusion, with the uncertainty in Europe and the focus on the upcoming Eurogroup meeting on the 20th, I believe we should stay clear of the EURO as traders will sit on the sidelines. With the U.S. Thanksgiving holiday’s on Thursday and Friday, effectively cutting the week short, I believe EUR could either breakout to the top and retest the 1.3150 level, or drop down to the 1.2500 level, therefore it is important to follow the Eurogroup meeting, the Troika report, and any new developments in Europe for directions. GBP and CHF are likely to follow the direction of the Euro, therefore I’d also recommend to use caution and sit on the sidelines for the time being, there is really no reason to take the risk as liquidity will be thin for the week. CAD is likely to be range bound, following the same pattern we’ve seen in the past week. As a matter of fact, I believe CAD may not be a buy on dips anymore, especially considering the weakness we saw in the commodity space… Of course, if EURO were to gain this week, then CAD will follow on weak USD, therefore range trading is the play for CAD this week. JPY is definitely a SELL on rally, especially considering the implications of having LDP running the government. I believe we should buy all JPY crosses, with CADJPY and AUDJPY being probably the best pairs to trade. NZD is probably going to trade weaker than AUD, therefore I’d recommend a LONG on AUDNZD at support levels… AUD is likely to be well supported, a buy on dips is the recommended play.With the Chinese economy remaining resilient and the fact that a new stimulus is coming, AUD should be well in demand.

Here are the tradable releases for the week:

  1. Mon November 19, 2012 – 10:00am EST – US Existing Home Sales
  2. Wed November 21, 2012 – 4:30am EST – UK MPC Meeting Minutes
  3. Thu November 22, 2012 – 8:30am EST – CA Core Retail Sales
  4. Fri November 23, 2012 – 8:30am EST – CA Core CPI

Please note that since Thursday and Friday are Thanksgiving Holiday in the U.S., we will see extreme low liquidity, therefore it is best to stay out of the market. Historically, we’ve seen some of the most volatile market conditions during this time, it is better be safe than sorry.