Review:
China Over the weekend the distribution of the economic indicators resulted in a 'tie'. Industry and retail sales data were strong, but exports (2.9% as compared to the expected 9%) and investments offered nasty surprises. We are particularly concerned about the weak investment level as investments account for about 48% of GDP and therefore they are important to secure economic growth.
EU
Italy: PM Monti will resign when the budget is approved. This means that a general election will be called in February/March (originally planned for April). Political unrest may affect EUR adversely. Over the weekend several signals indicated successful Greek buybacks of government bonds. This may cause demand for EUR.
EURUSD: Despite the steep fall after the ECB meeting and the release of non-farm payroll data, EURUSD managed to end the week above the important 40-week moving average (127.88). We recommend BUY in the event of setbacks in the range [126.70 - 129.30].
Market sentiment:
As expected we saw a couple of days with risk-off, which offered a bit of support to the safe-haven currencies. We still expect that the fiscal cliff situation and the problems in Greece will be solved in December and that, going into 2013, the financial market will be characterised by positive undertones.
Events of the week: 'Soft' beginning and 'hard' ending today: 09:30 Sweden: industrial production. Consensus 0.0%; last time: -4.1%. 10:00 Norway: CPI consensus 0.2%; last time: 0.5%.
Wednesday: On Wednesday there is an extraordinary Ecofin meeting; the joint supervisory authority is on the agenda. Wednesday night will see one of the important interest-rate meetings at the Fed. It is expected that further initiatives will be decided to replace operation twist. Direct purchases of government bonds will stimulate the financial market = risk-on. Will the Fed launch new criteria for further interest-rate hikes?
Thursday: Meeting of the Eurogroup on Greece. This will be the time for 'a green light' so the situation in Greece can be improved. We expect a strong reaction in the market. PMI from China.
Friday: EU summit on the proposal for tighter integration. PMI data from the EU and the US.
EURUSD (NEUTRAL): BUY on price setbacks. We expect that EURUSD will breach above the level of 132 by the end of 2012 for the following reasons: 'Fiscal Cliff': An agreement will be reached by the end of December. EURO: The rescue package for Greece will be finally approved by 13 December.
China: Economic indicators in December will still show a positive development.
The Fed: Will expand QE on Wednesday. The technical analysis indicates that EURUSD is subject to a minor setback. MACD and stochastics point downwards for the short term. 50 MA is above 200 MA. Indicating continuation to the upside. Based on RSI in combination with 50 MA, this will continue.
EURUSD has breached through the trend line from May 2011. Was it a false breach? A weekly close below 127.87 will be bad news from the point of view of technical analysis. We recommend investors to pick up in the range of 126.70 - 129.30.
Resistance and support:
Downside: A breach below 128.80 opens towards 126.60.
Upside: Resistance at 131.40-72 and then 135.
EM currencies: Generally we have a positive view of EM currencies over the coming period - except for a few currencies, such as PLN.
EURTRY (SELL) We recommend SELL; S/L at 234.04.
EURUSD and EURTRY have a very high correlation. If EURUSD turns around again, EURTRY will follow suit. In the event of trading below 129, we recommend investors to move S/L down to 131.
EURPLN (BUY) – Strong buy in the event of setbacks. We recommend BUY; S/L at 408.35. The Polish central bank has initiated a series of interest-rate cuts resulting in negative pressure on PLN. ,Based on economic indicators, the negative macro-economic development will continue. The EU's low-growth scenario puts pressure on Poland. It is particularly bad news that growth in Germany is also being affected.
EURSEK (NEUTRAL) - consolidation will end soon. EURSEK has traded in a slightly rising consolidation trend since the end of August. The cross rate is caught between the trend line and the 200 MA (see chart). ,An upcoming breach can be approached in two ways:
1) place a buy order at 869.25 and a sell order at 855.75.
2) buy a 2-week strangle at 856 and 869. It costs about 4.8 figures.
The best strategy for investors believing that the consolidation continues will be to sell a strangle at 856 and 869. It gives about 4 figures
IMOH, Clement I
+234 802 905 9344
+234 703 569 1707
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