Forex Market Review And News Calendar For January 7 ~ 11, 2013

Forex Market Review And News Calendar For January 7 ~ 11, 2013

2013 started off with a bang as global markets rallied after a temporary deal was reached in U.S. at the very last moment possible.  Although the deal was just a temporary solution, market traded as if there are no more concerns, with all U.S. Equity Indices ending the week with an average of 4.4% of gain…  However, the FOMC Minutes on Thursday gave the market a reason to consolidate as “several (officials) thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet,” but the market quickly recovered on the back of the in-line Nonfarm Payroll Employment release on Friday.  As a matter of fact, because of the NFP release, analysts are now convinced that the Feds will continue with QE for the time being, simply because the recovery is not there just yet.

A closer look at the US December Nonfarm Payroll report showed a solid but rather unimpressive employment growth, here is the breakdown:

(US) DEC CHANGE IN NONFARM PAYROLLS: +155K V +152KE

  • CHANGE IN PRIVATE PAYROLLS: +168K V +155KE
  • Change in Manufacturing Payrolls: +25K v +4Ke
  • Birth-Death Adjustment: -4K v -29K prior
  • Prior Change in Nonfarm Payrolls revised higher from +146K to +161K
  • Prior Change in Private Payrolls revised higher from +147K to +171K
  • Prior Change in Manufacturing Payrolls revised higher from -7K to +5K
  • UNEMPLOYMENT RATE: 7.8% V 7.7%E

… although the ADP report on Thursday came out much better than expected and stoked market expectation for a much higher NFP release, the slightly better 155K figure ended up disappointing the market, prompting a wave of profit taking but at the same time, reassured the market that the Feds will continue with QE3 and QE4, as the inline release could never be interpreted as “substantial improvements” in the eyes of the FOMC.

The FOMC minutes on Thursday caused a sense of nervousness in the market and in my opinion, not an issue to be taken lightly. The minutes revealed a growing divide within the FOMC as several members expressed their views for the potential of the FOMC to halt or reduce QE before the end of 2013, a view that has been proposed by Fed hawks Bullard and Plosser for some time now. Furthermore, the minutes also suggested concerns on inflation expectations and the potential of impairment to the future implementation of monetary policy. Some analysts dismissed the importance of this event and said that this may have been an intentional experiment by the Fed, while others said it was a definite shift in policy direction.

In Japan, the JPY weakened further as the new PM Abe continued his campaign to tackle deflation and force the BoJ to adjust its inflation target to 2%, by law if necessary. USD/JPY tested 29-month highs above the 88.30 as yen reached the 8th consecutive week of losses against the dollar, or the longest losing streak since 1989. The EUR/JPY moved out to 16-month highs at above 115.90.

In China, the both Manufacturing and Services PMI came in better than expected, showing multiple months of consecutive gains, solidifying the view that the Chinese economy has bottomed out in late 2012.

The top 10 news of the week ending January 4, 2013.

In conclusion, EUR, GBP, CHF are likely to remain under pressure, although some consolidation is expected from the recent sharp sell-offs.  With the Feds changing their tones on monetary policy and potentially ending their multiple QE programs before the end of 2013, there is a real concern that USD may continue to gain sharply, especially when considering the improvements in recent economic releases.  I’d be very careful going LONG on these European currencies, not until the issue has been settled at the FOMC Meeting, which is scheduled on January 30, 2013.  If Bernanke were to remain dovish, then USD could weaken as risk appetite sentiment resurges; however, if the opposite is true, then we could be looking at 1.2500 or lower against EUR in the next couple of weeks…  JPY is likely to remain weak, USDJPY is definitely positioned to top above the 90.0, especially under PM Abe’s administration.  My suggestion is to SELL JPY on rallies, but keep the trade open, as I do not see a TP level, just yet.  CAD is likely to weaken against USD, thus I’m going to be looking to BUY the USDCAD pair, due to the increasingly hawkish tones by Fed officials.  AUD and NZD are likely to remain in demand, since strong USD may not necessarily affect their strengths, or risk demands.  I would expect to see both currencies to remain in the recent ranges, at least for the week… The best trading opportunity is still shorting the JPY this week.

Here’s the list of tradable releases foo the week:

  1. Mon January 7, 2013 – 10:00am EST – CA IVEY PMI
  2. Tue January 8, 2012 – 7:30pm EST – AU Retail Sales
  3. Thu January 10, 2012 – 7:00am EST – UK BOE Interest Rate
  4. Thu January 10, 2012 – 7:45am EST – EU ECB Interest Rate
  5. Thu January 10, 2012 – 8:30am EST – EU ECB Press Conference **

** Main focus event of the week…

 

Thanks,