Good morning. I hope you had a good weekend. Well after last weeks extreme volatility (thanks mostly to the SNB) I wonder if this week will be a bit calmer? ECB policy makers will meet on 22nd January to discuss introducing new stimulus, including quantitative easing. We have had quite a bounce from the 6300 low that we saw on the 16th, now nearly at 6600 and a little bit of a better picture on the daily chart with the EMAs brewing for a cross to the upside. The 200ema resistance is at 6616 and we do have channel tops at 6650 though so the bulls have their work cut out. A move above 6700 will turn things more bearish and start to invalidate the drop potentials that we had at the start of the year. All time highs in time for the election…..?
Asia Overnight from Bloomberg
The yen gained against all its major counterparts with the steepest rout in Chinese equities since 2009 driving demand for havens.
Japan’s currency approached a three-month high against the euro as Chinese brokerages slid after regulators took measures to rein in margin trading. The Swiss franc fell against all 16 major peers following a surge last week after the central bank’s decision to abandon the currency’s cap versus the euro. The shared currency was little changed amid speculation the European Central Bankwill announce additional stimulus measures at a meeting this week.
“The slide in Shanghai stocks is leading to yen buying,” said Yuji Saito, director of foreign exchange at Credit Agricole SA in Tokyo. “With risk sentiment deteriorating right now, anything obscure will lead to reducing positions.”
The yen rose 0.3 percent to 117.15 per dollar at 2:49 p.m. in Tokyo from Jan. 16, and gained 0.4 percent to 135.40 per euro. The franc dropped 0.9 percent to 86.62 centimes per dollar, after surging 21 percent on Jan. 15.
The 19-nation currency was little changed at $1.1559 after falling to $1.1460 on Jan. 16, the weakest since November 2003. It traded at 1.00084 Swiss francs after plunging 17 percent last week to 99.41 centimes.
The yen was the biggest gainer today among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. It rose 0.5 percent, the dollar gained 0.1 percent, the franc slid 0.9 percent. U.S. financial markets will be closed today for Martin Luther King Day.
Chinese Brokerages
Demand for the yen grew after the Shanghai Composite Index slid as much as 7.1 percent. Citic Securities Co. and Haitong Securities Co., two of the brokerages targeted by regulators, fell by the 10 percent daily limit. The stock gauge’s 30-day volatility advanced to the highest level in five years.
“Markets are risk sensitive,” Toshiya Yamauchi, a senior analyst in Tokyo at Ueda Harlow Ltd., a margin-trading-services provider, wrote in a note to clients. “The focus this week is whether markets can improve risk aversion.”
ECB policy makers will meet on Jan. 22 to discuss introducing new stimulus, including quantitative easing, a move that may add to pressure for the franc to climb against the euro. On Jan. 15, the SNB scrapped the 1.20 francs per euro cap on its exchange rate.
The euro will trade near parity to the franc over the next six months before rising gradually to 1.05 in 12 months on “slow but steady normalization in the Eurozone,” UBS Group AG strategists including Beat Siegenthaler in Zurich wrote in a research report to clients yesterday. The franc at parity would make the currency more overvalued versus the euro than at any other time in the past 30 years, according to UBS.
Dollar Support
A gauge of the dollar held its biggest gain in two weeks after a report on Jan. 16 showed U.S. household confidence surged on a strengthening job market and lower fuel costs.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, was little changed at 1,139.62 after climbing 0.2 percent on Jan. 16. it closed at 1,147.54 on Jan. 8, the highest in data going back to 2004.
“Nothing could be clearer than the current economic and policy divide” between the U.S. and Europe, David De Garis, a senior economist at National Australia Bank Ltd. in Melbourne, wrote in a note to clients. As the Federal Reserve “ponders rate lift-off and U.S. consumer sentiment hits its highest level for 11 years, the ECB last week has been putting together a QE plan that will get some sort of approval from Germany.”
The University of Michigan preliminary consumer sentiment index for January rose to an 11-year high of 98.2, exceeding the median forecast of economists surveyed by Bloomberg News.
BOJ Decision
The Bank of Japan starts a two-day meeting tomorrow to consider progress on stimulus after it boosted an already unprecedented bond-buying program in October.
While the BOJ is unlikely to change policy, traders may sell the yen if the central bank cuts its price outlook because of falling oil prices, according to Ueda Harlow’s Yamauchi.
A key level for the dollar is 118 yen, which is the strike price for expiring options contracts this week with a combined notional value of $3.3 billion, according to Tamara Henderson, an economist at Bloomberg LP in Singapore. Other currencies trading near strikes on large options contracts against the greenback expiring this week include the euro, Australian dollar, and yuan, Henderson wrote in research. [Ref]
FTSE Outlook
I think we will get an initial dip today then a rise and a test of the top of the daily channels at the 6650 area – the 10 day Bianca and the 20 day Raff are both around this level. Ig have their daily pivot at 6533, whilst the live charts one is at 6516, which also tallies nicely with the bottom of the 10 minute channel that we are currently in. I have plotted todays arrows on the 10min chart. Presuming that the 6515 area holds as support then hopefully the bull will put in a decent rise. However, if that level breaks then 6445 looks likely, and a break of that level will lead to 6413 (bottom of 10 day Bianca) and 6333 (Bianca 20 day channel bottom). On the upside, if the bulls break 6650 then 6700 is in sight, and thats fairly key – if the bull break that then it makes things quite bullish as the daily EMAs will likely cross to bull, and we could be on a path for 6900 in the fullness of time. But, looking at today, I am looking at just those 2 trades in the trade plan.