| CATEGORY: FX |
Euro $1.5055 Awaits GDP Revisions |
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By Ashraf Laidi
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Mon 23 Nov 2009
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Another Monday rally in equities at the expense of USD & JPY just as the last 4 Fridays have proven positive for the USD and JPY at the expense of equities and oil.
LONDON (SHARECAST) - Contrasting remarks on monetary policy from the ECB and the Fed have driven fresh USD weakness, with Atlanta Fed’s Bullard backing more purchases of MBS, while ECB’s Trichet hinting at a possible tightening of the eligibility criteria for its ABS lending activities. Yet, $1.5055, not $1.5000, remains the target for euro bulls to overcome. Today's release of new existing home sales is largely expected to increase by about 2% following the strong showing of pending home sales, but FX may require an extra dosage of appetite to prop the euro, which could be obtained from the Q3 GDP revisions in the US, Germany and UK.
Another Monday Rally in Equities at the Expense of USD & JPYJust as the last 4 Fridays have proven positive for the USD and JPY at the expense of equities and oil, today (as in the last 4 Mondays) proves negative for USD and JPY to the benefit of global equities and oil prices. The common denominator of this pattern has been the interplay between the chief catalysts to risk appetite; (i) dollar weakness and; (ii) economic data/central bank rhetoric. But the increasingly consistent trend has been for major US equity indices to fail in breaching above their key retracement levels (1120 and 10335 in S&P500 and Dow) and for US crude oil to regain $80.50.
Existing Home Sales to Reflect Pending Sales
Today’s release of US Nov existing home sales (exp +2.3% to 5.7 mln) will likely reflect the rise in pending home sales released earlier this month. Since existing sales are based on actual contract closings and pending sales are based on initial contracts, today’s figure will likely show a confirmation of the increase in initial contracts. A second monthly consecutive increase in home sales will likely extend the day’s advances in European markets and boost US equity indices from their 3-day losing streak. But no credible attempts are expected to retest the 1,120 in the S&P500 today until later this week, amid the first revision of US Q3 GDP tomorrow.
Euro nears $1.5050 after ECB’s JC Trichet hinted at a possible tightening of the eligibility criteria for ABS lending. Tomorrow’s Nov IFO survey and revised Q3 GDP figures from Germany and the US will be instrumental in determining the momentum of dollar selling. A downward revision in US Q3 GDP (to below 3% after an advanced estimate of 3.5%) would be USD-positive if German GDP figures saw no improvement. Positive surprises in both figures could conspire in adding to risk appetite and calling up the $1.5075-80 level.
GBP is the 3rd weakest currency of the 11 majors today (behind USD and JPY). A potential upward revision in UK Q3 GDP later this week to -0.3% from -0.4% could further stabilize sterling. For now, GBPUSD remains capped at $1.6675-80, with US GDP likely to play the defining role in determining the fate of the $1.6730 resistance, GBPJPY eyes a fresh attempt in regaining 150 this week but must first overcome the 148.50-70 congestion. EURGBP broke above its 5-week trend line resistance of 0.8950 to hit a fresh 2-week high of 0.9038 but unable to follow up towards 0.9070. Support has now climbed towards 0.8935-40.
USDCAD sheds 1.3 cents as the loonie preserves its positive correlation with oil and equities. Markets await the 13:30 GMT release of Canada’s Sep retail salesMarkets await the 13:30 GMT release of Canada’s Sep retail sales (exp +0.6% from +0.8%, core exp -.4% from +0.5%). Having failed the 2-month trend line resistance of 1.0770, USDCAD now risks extending losses to 1.0530 and 1.0490—61.8% retracement of the Nov 16-Nov 20 rally.
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