Currency Updates:
AUD/USD After the pair broke the 0.8750 barrier profit taking kicked in. Short covering in Europe’s morning took the pair from 0.8748 to 0.8803 before it slid towards 0.8795 into NY’s open. Early NY saw a rally to 0.8800 but fresh offers camped in that area combined with the USD’s power run higher capped the lift. The pair then spent most of NY’s session drifting lower. A NY low of 0.8755 was all bears could muster though. AUD/NZD’s lift above 1.1140 and EUR/AUD’s slide to 1.4455/60 likely prevented further AUD losses vs. the USD. Late in the day AUD/USD sat near 0.8765. Bears hold control of AUD/USD. The weekly close below the 76.4 Fib of 0.8660-0.9505 combined with bear biased day/week RSIs and narrower yield spreads suggest a test of the 2014 low at 0.8660 is due. Daily lows of Feb. 3 & 4 at 0.8730 need to be overcome first. Once cleared only option barrier interest will provide some support but it’s unlikely to stem the l-t trend.
EUR/USD Europe held the pair to a relatively tight range as it appeared a quiet market was setting up into the weekend. EUR/USD bears were abruptly shaken from their slumber in early NY though. USD/JPY powered through the 109.10 levels and US bond yields saw a strong rally. Both rallies coincided with the announcement that Bond investor Bill Gross was leaving Pimco to join Janus Capital Group and had some traders attributing the rally to that event. EUR/USD dived from the 1.2745 area and didn’t let up until it hit 1.2679. A brief bout of USD weakness allowed a bounce above 1.2700 but USD strength returned (particularly vs. JPY) and EUR/USD slid to a new trend low of 1.2677. Very little bounce was seen and the pair sat near the low late in the day. Traders now turn their focus to German & EZ CPI readings and the ECB next week. Soft inflation data will put further pressure on EUR/USD. Traders likely look to sell rallies ahead of the ECB as market sentiment grows that the ECB’s current plans won’t expand their balance sheet enough and they may resort to QE. It’s unlikely the ECB will announce additional easing methods next week though.
USD/JPY From Asia lows that held just above the 200-HMA, USD/JPY climbed to and through the Jan 19 prior peak at 109.46 and cleared the 109.50 barrier with HF help. Rising short-term US rates and a rebound in stocks from Thur’s big dip fueled the advance. Playing supporting roles were the o/n MOF weekly investment flows showing Japanese bought net Y774b of foreign bonds and Japan’s Labor Min dispelling rumors that GPIF reform might be held up due to delays in legislation. Another round of barrier defenses and exporter offers are touted into 110. Note that prices are at the top of a 3 std dev band around the linear regression from the 1998 peak. The Fed’s clearly growing concerned about a runaway USD rally becoming a backdoor tightening that could delay or attenuate policy normalization. 110.67 is the next historical hurdle. EUR/JPY slide was interrupted near the rising 21- & 100-DMAs and by the resumption of the USD/JPY uptrend. ECB speakers continue to claim they’ll be able to expand their balance sheet more rapidly after the AQR is over, but doubts persist about that and public QE. Big JPY data day Monday, US NFPs Fri.
Looking Ahead – Economic Data (GMT)
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Looking Ahead – Events, Other Releases (GMT)
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