12/02/2014
The risk-on trades are back in the game. In her semi-annual testimony before the Congress yesterday, the Fed President Yellen said she “expects great deal of continuity in FOMC’s approach to the monetary policy”, while adding that crossing the unemployment and inflation thresholds will not automatically prompt a rate hike. Dovish enough, Janet Yellen triggered a risk rally. The US 10-year government yields advanced to 2.7314%, while USD lost against all of its major G10 peers except SEK.
Timid increase in US yields and softer USD kept USDJPY capped at 102.68 post-Yellen. The MACD stepped in the bullish zone and will suggest further upside correction for a daily close above 102.30. Option barriers with today expiry are seen pre-103.00 & 104.00. Bids trail above 102.00. EURJPY tests 140.00/30. We look for further recovery for a close above 21-dma (currently at 139.89).
EURUSD tested 1.3680/85 yesterday on stronger bullish momentum. The pair failed to consolidate gains above 1.3655/65 as EUR sharply sold-off versus AUD post-Chinese data. The pair remains comfortably in the daily cloud cover (1.3594/1.3711) with support seen at 1.3595/1.3600.
In China, the trade surplus unexpectedly increased to USD 31.86bn in January from USD 25.64bn a month ago. The exports surged to 10.6% from 4.3%. The Asian equity markets traded in green; the Nikkei 225 gained 0.56%, Hang Seng added 1.50%, Shanghai’s Composite advanced 0.30% (at the time of writing). AUDUSD rallied to 0.9067. Offers are seen pre 0.9080/0.9100 (Fibonacci 61.8% on Oct ’13 – Jan ’14 drop), stops are building above. The bias is solidly bullish.
The BoE releases its quarterly inflation report today and all eyes are set on Governor Carney. We are curious to hear about what Carney has to say on the trajectory of the forward guidance, now that the UK unemployment rate (7.1% as of Nov) unexpectedly nears the 7.0% threshold for tightening. It is well-known that Carney is willing to follow his forward guidance framework to help the economic recovery build momentum. This said, markets are likely to continue playing against Carney and betting for sooner than scheduled tightening. GBPUSD rallied to 1.6487 after breaking the 21-dma (1.6446) post-Yellen yesterday. We see fading bearish momentum. Bids are seen at 1.6380/1.6400 current week’s support.
Today, the key event is BoE’s quarterly inflation report. The economic calendar consists of French December Current Account Balance, Spanish December House Transactions y/y, Swiss January CPI m/m & y/y, Norwegian 4Q GDP q/q, Euro-Zone December Industrial Production m/m & y/y, US February 7th MBA Mortgage Applications, Canadian January Teranet / National Bank HPI m/m & y/y, US January Monthly Budget Statement.
