The dollar’s on a roll – January 7 2013 daily

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Data/Event Risks

  • EUR: Not much on the agenda. Political developments in Italy are worth watching out for.
  • USD: Little of substance in terms of economic releases today, or for that matter in the first half of this week. Need to keep a weather eye on US debt ceiling debate.

Idea of the Day

It is hard to ignore the solid performance of the dollar over recent trading sessions, helped by a more hawkish FOMC and comparatively respectable growth. Short-term, it would not be surprising if this dollar demand did not continue. For both the euro and cable, there are some very critical support levels that lie not far beneath current spot – if broken it could presage a rapid slide to lower levels. At the same time, the yen short trade is still alive and well, notwithstanding justifiable concerns that it has gone too far too fast.

Latest FX News

  • JPY: Still the black sheep amongst the majors, with USD/JPY reaching 88.41 on Friday, the highest level since April 2010. New PM Abe still talking tough re need for urgent BoJ reflationary policies. Witnessed some pre-weekend profit-taking by yen shorts after US payrolls. No need to fight the trend just yet.
  • USD: A more hawkish Fed provided the dollar with some additional impetus on Friday while weighing heavily on other safe-havens like gold and the yen. Higher treasury yields giving the greenback some assistance as well. A pedestrian payrolls report prompted some dollar longs to head for cover. Greenback still looks bid.
  • EUR: Has been caught up in the currency cross-currents in recent days amidst a renewed thirst for dollars and continuing distaste for the yen. Found some determined buyers at the 1.30 level on Friday which frustrated the bears. Critical support levels lie below 1.30 – if broken, could see 1.29 quickly.
  • AUD: The advance of the dollar weighed on the Aussie as it fell below 1.04 on Friday, but it recovered nicely and overnight traded above 1.05. Still sitting within an incredibly narrow 1.02-1.06 trading range that has existed for the past six months.
  • GBP: Struggled on Friday after poor services PMI data, almost trading beneath 1.60. A justifiable concern is that the current quarter may also record negative growth (it is widely expected that Q4 will show a decline), which could trigger renewed speculation regarding QE. Important trend-line support exists at 1.60.

Further reading: 5 Most Predictable Currency Pairs – Q1 2013

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