Weekly Forex News February 3rd 2013

Weekly Forex News February 3rd 2013
FCTOFX: While some volatility was seen in the markets last week, the overall
trend didn't change: Euro's strength and yen weakness continued to
dominate. Indeed, it should be noted that some important technical levels
were decisively taken out, including 1.35 in EUR/USD, 120 in EUR/JPY, a
medium term trend line resistance in EUR/GBP, and 1.30 in EUR/AUD. All
these developments indicated a strong underlying momentum in the Euro
and the strength was rather broad based. That's also a clear indication of
funds flowing back to the Eurozone from everywhere as sentiments
stabilized. Meanwhile, despite some hesitations, yen crosses were bid up
again towards the end of the week. And, both USD/JPY and EUR/JPY took out
a near term channel which indicated accelerations. Overall we anticipate the
trend to continue.

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Elsewhere in spite of a rebound attemp, Sterling ended up as the second
weakest currency last week as economic data showed that recovery in the
UK would stall. The Aussie remained weak and was weighed down by
Reserve Bank of Australia's expectations as well as mixed data from China.
The Canadian dollar staged a strong rebound last week but the price
structure still suggested that it's merely a correction. The Swiss Franc,
continued to track the Euro closely as EUR/CHF is bounded in range. Mixed
data from the U-S didn't give the dollar a clear direction as it just followed
others. Looking forward, we expect to see Euro buying and yen selling to
continue. Sterling should still be avoided as it will probably be overwhelmed
by the Euro. Aussie short's could be maintained but better against the Euro
rather than dollar. The Dollar will continue to have no clear direction in
general so we prefer to continue EUR/JPY long ahead.


The Fed maintained the pace of asset purchases at 85 Billion US Dollars and
left the policy rate unchanged near 0%. There were few changes in the policy
statement. Yet policymakers noted that 'growth in economic activity paused
in recent months', suggesting the monetary stance should remain
accommodative. The central bank should remain in a 'wait-and-see' mode so
as to monitor the impacts of fiscal austerity, in particular expiration of the
payroll tax holiday expiration. Economic data from the US was mixed: Q4
GDP showed an unexpected contraction of 0.1% versus consensus of 1.2%
growth. The GDP price index also rose much less than expected by 0.6%.
Conference board consumer confidence dropped more than expected to 58.6
in January, compared to expectation of 64. That was the worst reading since
November 2011 and the 8.1 point drop from December's revised reading of
66.7 was the largest deterioration since August 2011.


However, ISM manufacturing index beat expectation and jumped to 53.1 in
December. The Non Farm Payroll showed the US job market grew by 157,000
in January, similar to expectation of 155,000. And Last month's figure was
revised sharply up from 155 to 196,000. However the unemployment rate
unexpectedly edged higher from 7.8% to 7.9%. Headline durable orders rose
strongly by 4.6% in December versus expectation of 1.9%. Ex transport
orders also rose more than expected by 1.3% versus consensus of 0.8%.


Heavy weight data will be released from US today. The Non farm payroll is
expected to rise 155,000 in January while the unemployment rate is expected
to be steady at 7.8%. ISM manufacturing index is expected to drop to 50.5 in
January. University of Michigan confidence and construction spending will
also be released. While the data might trigger some volatility in dollar pairs,
they should have no impact to the underlying trend in the USD/JPY. That is,
we'd suggest to stay long EUR/JPY, as well as USD/JPY, and forget about the
other pairs for today.


The Euro's strength is a clear indication of a continuous improvement in the
confidence towards the Eurozone. Another clear indication was that Italy
sold it's maximum target of 6.5 billion euros in 5 and 10 year bonds with
steeply lower yields. The smoothness of the auction showed markets are
calm regarding the situation in Italy, even though there are just over three
weeks before an important parliamentary election. Sterling on the other
hand was weighed down by weak data: UK PMI manufacturing missed
estimated. Overall bearish developments in the pound were driven by weak
economic data, funds flowing back to the Eurozone and the next Bank of
England's governor Mark Carney's comments. The Treasury Committee of the
House of Commons will ask Carney to have a hearing on February 7th on the
current policy framework. Sterling's direction, if not down, will be more
dependent on this event.


The Japanese government raised the 2013 to 2014 growth forecast to 2.5%
compared to August's projection of 1.7%, as the country emerges from
recession. CPI growth is expected to be at 0.5%. Finance minister Aso
predicted that there will be 43.1 Trillion Yen in tax revenue in 2013 to 2014.
Total spending is expected to be at 92.6 Trillion while there would be 42.85
Trillion raised from bond issues. That would be the first time in four years
that tax income would exceed new debts. Aso said that for three years the
"bond issuance exceeding tax revenue is abnormal," and it's a "big deal" it's
turned around. However, some economists are skeptical on whether tax
revenue could fall short of the estimate.


The Kiwi was supported after trade balance unexpectedly showed a 486
million New Zealand Dollar surplus in December compared to expectation of
a 105 million deficit. That was indeed the largest surplus figure since 1991.
The Reserve Bank of New Zealand announced to retain the Official Cash Rate
at 2.5%. The meeting statement was more upbeat, noting that global growth
is set to recover in 2013 while strength in New Zealand's economic expansion
would bring 'inflation slowly back towards the 2% target midpoint'.

China's manufacturing PMI unexpectedly dropped to 50.4 in January, down
from 50.6 in December and was lower than expectation of 51. Though, the
HSBC manufacturing PMI was revised up to a two year high of 52.3, up from
preliminary reading of 51.9 and last month's 51.5. The data showed that
China's manufacturing activity is back in expansion mode and will probably
stay there: however strength of the expansion could be modest.


Weekly Forex News February 3rd 2013

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