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Winding Down…
Winding Down…
Thu, Dec 31 2009, 17:30 GMT
Holiday mode continues to contribute to interesting swings in price action with the USD rising in tandem with stocks at the beginning of the week vs. most of the majors. USD/JPY is a very interesting story as we grind higher into year end. The rally off of the 84.80 level is firmly in tact with near term bias still to the upside after the Dec. 15th break above the cloud resistance. The pair has had a steady rally this month, rising on recovery optimism in the US and an improving yield relationship between US treasuries and Japanese JGB’s.
Also helping to spur USDJPY higher are comments during the week from BoJ Governor Shirakawa who said that the BoJ will remain patient in their near-zero interest rate policy. The technical bias near term, however, is still firmly towards that area. The start of the decline at the end of August began around the 93.27 level and the 200 day SMA on the daily is sloping lower towards 93.70. We should see heavy seller interest at these levels. So In terms of where we could go heading into 2010, it is more than likely that the pair will pare its gains heading into the 93 area, where institutions and major players are rumored to be waiting.
See chart.
The week wasn’t without heavy data, with GDP data from the US, New Zealand, and a month on month print from Canada. Quarterly GDP in NZ was worse than expected, but a positive revision on last quarter’s GDP helped soften the blow. Outlook is still strong in New Zealand, as central bankers have noted that they expect to normalize economic policy in the middle of next year. Rate expectations are still high going into the 1st quarter and may put Kiwi bid in the first month of 2010. Most of the major data this week pertained to the US economy, with Existing Home Sales, New Home Sales, m/m Core Durable Goods, and Unemployment claims all released during the week.
New Home Sales usually give us a good indication of where existing home sales are going, so these numbers are pretty worrisome. There isn’t a huge discrepancy between the previous print in New Home Sales, but it is enough to warrant a mention. We could expect to see a definitive decline in existing home sales into next year as the recovery pans out. This data came out towards the end of the week, right around the time the greenback began to give back some of its gains from the previous weeks rise.
The MPC minutes was also released this week, with members voting 9-0 in favor of leaving interest rates unchanged and to leave their asset purchasing program intact. From the statement we can garner that there is some faint evidence of economic momentum in the UK with improving labor conditions prevalent in previous data releases. The sterling dollar pair was fairly rangy with the holidays so expect some follow thru into next week.