Data/Event Risks
- GBP: The main focus is the CPI data. The market is expecting a steady 2.7% reading, although if anything risks are modestly to the upside of this. A firmer number would offer some support to sterling, but any rally could struggle to be sustained, given that BoE still seen very firmly on hold for the time being, the economy remaining weak.
- USD: Obama’s State of the Union address will be the focus late on Tuesday. The President is likely to use the address to call for action to avoid the spending cuts that are due to kick in later this month, but as always the time for action is getting depleted by the day.
Idea of the Day
With Japan deliberately debasing their currency and Europe beset by contagion concerns amidst plans to force uninsured depositors in Cyprus to accept much pain, it was unsurprising to see the dollar perform well again yesterday. The new allure of the dollar also weighed heavily on the gold price, which lost USD 25 to around the USD 1,645 level. Although the euro was the darling of currency markets last month, the dollar retained its poise throughout the rampant buying of the single currency. Do not underestimate the dollar over coming weeks.
Latest FX News
- JPY: Still losing ground, with USD/JPY climbing to a new high of 94.39 overnight after some supportive statements from US Treasury Undersecretary Brainard. Pulled back when news came through that North Korea had actually delivered on its recent threat to conduct further nuclear tests. Poor old Japan is besieged from all sides these days – it is in dispute with China over the Senkaku islands, with South Korea regarding their exchange rate policy, and now it has angry North Korea flexing their nuclear muscles. Watch the yen crosses however – EUR/JPY did not make a new high overnight, nor did AUD/JPY, a sign perhaps that yen sellers are losing their grip.
- EUR: Briefly recovered 1.34 yesterday after Bundesbank head Jens Weidmann declared that the euro was not seriously overvalued. Has lost the aura of invincibility that characterised the first few weeks of 2013.
- GBP:Â Continues to trade like a leper, with cable sinking from above 1.58 to 1.5650 and EUR/GBP soaring more than 1%. Overnight news on house prices from RICS will not help the downbeat tone.
- AUD: Remains well-offered these days against the backdrop of speculation that the RBA is likely to lower rates soon, although there was little follow-through overnight. For now, the 1.02-1.06 trading band that has existed since July last year is intact. The 1.02 region will be tough to crack – plenty of options positions down there will provide solid support, and some critical technical levels also exist below current levels. Fading the extremes of the range has been a fruitful approach for some time now, and it may prove to be so again.
