http://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/opening_comment/2011/01/04/Aussie_Yen_and_Franc_Shine_Looks_Like_It_Could_be_Fading.html
While there haven’t been too many developments on the fundamental end of things over the past few hours, we have been noticing interesting price action in some of the currencies. Markets that had been the standout outperformers in the previous week’s lightened holiday trade, have been suffering in the early year, with Aussie, Yen and Swissie all showing some relative weakness in on Tuesday. Meanwhile, all of the other major currencies seem content on consolidating by Monday’s closing levels.
Certainly, there can be some fundamental justification for the Aussie weakness on Tuesday after the Australian AIG performance of manufacturing index fell by 1.3 points to 46.3 in December, to put in the fourth consecutive month below the critical 50 boom-bust level. This has opened a major round of profit taking on long positions, with the currency backing off from post-float record highs by 1.0260. Tuesday’s early break below Monday’s low is technically significant, with the market ending a sequence of consecutive daily higher lows.
Meanwhile, technicals have played somewhat of a formidable role in the latest Usd/Jpy bounce, with the market stalling out by the 81.00 area last week, which loosely coincides with the 78.6% fib retracement off of the major November-December 2010 move. While at this point it is too early to gauge whether this latest recovery has any teeth, we would not rule out this possibility and would look for further bullish confirmation on a break back above the daily Ichimoku cloud which comes in by 83.00.
Although local fundamentals are less influential when talking about price action in the more macro weighted Swiss Franc, the weaker than expected PMIs out of Switzerland on Monday have not been helping to advance the Franc to additional record highs. But it is probably the improved global risk appetite and solid demand for global equities that have really helped to open some across the board weakness in the single currency over the past session. This is also an overextended market that is very much exposed to some corrective adjustments at a minimum.
As far as the Greenback is concerned, we continue to remain constructive with the outlook. Economic data is really starting to show signs of legitimate recovery and Monday’s strong ISM manufacturing showing is representative of this fact. Additionally, whatever the timing, Fed policy has only one way to go from here, and at some point, the shift to a less accommodative bias will ultimately benefit the US Dollar. Comments from Fed Mishkin who says that “Q3 in unlikely” and that the US economy is “stronger right now” help to strengthen our core USD bullish outlook.
Looking ahead, the economic calendar starts to pick up on Tuesday with German unemployment (7.5% expected) due out at 8:55GMT, followed by UK mortgage approvals (46.5k expected), manufacturing PMI (57.2 expected), M4 money supply, net consumer credit (0.2B expected) and net lending on sec. dwellings (0.7B expected) at 9:30GMT. Eurozone CPI estimates (2.0% expected) round things out for European trade at 10:00GMT. US equity futures are marginally bid while commodities trade flat into the European open.
Written by Joel Kruger, Technical Currency Strategist
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