Forex Market Review And News Calendar For November 26 ~ 29, 2012

Although the week was cut short by the Thanksgiving Holiday with at least 80% of liquidity reduction by Wednesday, risk sentiments showed remarkable improvements as positive developments in Europe, U.S., and the Middle East helped to boost optimism. Market is now pricing in a potential resolution for the fiscal cliff in the U.S, release of the bailout tranche to Greece, and the cease fire agreement between Israel and Hamas to hold…  Towards the end of the week, EURUSD approached the 1.30000 psychological level.

In Europe, despite of a sovereign credit downgrade of France, due to a sustained loss of competitiveness and the failure to tackle structural problems, according to Moody’s, market still remained optimistic for the Euro.  As a matter of fact, French Finance Minister Moscovici claimed that the downgrade would force leaders to agree to pursue reforms, and that would not necessarily be a bad thing.  Although the downgrade have already impacted the rating of the ESM/EFSF bailout facilities, and the EFSF was forced to delay the auction of three-year notes on Tuesday.

In Greece, the negotiations continued on with final details expected to be negotiated this weekend ahead of another Eurogroup meeting this coming Monday.  This timetable would still allow Greece to receive the anticipated aid tranches in early December.  (Note: Both German and French Finance Ministers commented after the Econfin meeting on the 20th that a minor technical detail is holding up the negotiation and the tranche of bailout payment should be approved on Monday the 26th.)

In the commodity market, market focused on the tension between Israel and Hamas as both sides continued launch new offensives. By mid-week, the new Egyptian President is said to have brokered a cease fire deal and energy prices start to drop.  For the week WTI and Brent each finished up more than 1.5%, but well off the Monday highs.

In Japan, the USD/JPY pair hit fresh 7-month highs as a number of factors were responsible for the weaker JPY currency including: worse than expected Japan merchandise deficit, Japanese LDP opposition election platform, and dealer chatter of M&A flows with rumor that Softbank had started buying USD for acquisition of Sprint with cited.  The JPY was off its worst levels by Friday after LDP opposition leader Abe changed his FX intervention rhetoric that he was not thinking of currency intervention to weaken the JPY currency and wanted the BOJ to address strong yen through monetary policy.

In conclusion, EUR should be a BUY ON DIPS, especially considering that the market has been very positive for the EURO despite of Moody’s downgrade on France.  As a matter of fact, because of the intentional downplay by the finance ministers last week after the much anticipated Eurogroup meeting on the 20th, I believe there is a very strong possibility that a decision will be reached for Greece on Monday, which means we should see stronger EUR following the decision… EURUSD could retest the 1.3150 level before the end of the week, therefore I recommend to buy on dips.  GBP is also a BUY ON DIPS, with the quarterly Revised GDP scheduled on Tuesday, if we get a even better release, GBP should move up and potentially retest the 1.6300 level by the end of the week.  JPY consolidated a bit on Friday after LDP Abe’s comments on intervention, but JPY should still be a SELL ON RALLY currency, especially when Abe has not changed his stance on depreciating the JPY to inflation.  CAD and AUD should both be BUY ON DIPS, especially considering that recent IMF report calls for both CAD and AUD as reserve currencies.  CHF should gain following EUR, therefore a BUY ON DIPS; we should see CHF gaining against USD sharply, my view is that we’ll probably see 0.9200 or lower this week.  NZD should be a BUY ON DIPS, considering the risk appetite sentiment that is currently driving the market.  USD is a SELL ON RALLY, considering that there will be plenty of risk appetite events around, USD will probably remain bearish or just neutral.

Here are the tradable releases for the week:

  1. Tue November 27, 2012 – 4:30am EST – UK Revised GDP q/q
  2. Wed November 28, 2012 – 10:00am EST – US New Home Sales
  3. Thu November 29, 2012 – 8:30am EST – US Prelim GDP q/q
  4. Fri November 30, 2012 – 8:30am EST – CA GDP m/m