Day ahead in the FX market, Thursday December 13th

  • Yen crosses will be the focus with EUR/JPY +1.5% in last 24 hours:
  • Market reportedly extremely short of Yen and adding to positions:
  • I’d expect to see some Yen buy-back ahead of the weekend election:
  • AUD/USD has made a technically bullish break above its wedge formation; expect bids now at 1.0510/20:
  • No major data releases during Asian trade:
  1. my system has a sell signal on the AUDUSD at these levels (1.0550). Perhaps the wedge break is a fakeout, or at the least we make a test of 1.0520 area again.

  2. It seems another buy-risk-on-dips day. 🙂

    By the way, a sum up of what banks think will drive FX markets next year, for anyone interested (via DowJones):

    MORGAN STANLEY: 2013 is the year of yen weakness, Morgan Stanley says, predicting the currency will depreciate to Y92 against the dollar by the end of next year. “With the Bank of Japan likely to engage in a much more aggressive easing stance, this should catalyze yen weakening,” the U.S. bank says, citing the expected election this weekend of a Japanese government that is likely to put pressure on the central bank to do more to reverse deflation. A hefty slide in the Australian dollar, is also among Morgan Stanley’s predictions for 2013. Higher foreign investment outflows will likely drive the expected decline as the Australian economy weakens and local interest rates fall.

    CITIGROUP: It doesn’t see the dollar rallying next year unless the prospect of a U.S. interest rate rise begins to emerge. For the euro, the prospect of lower ECB interest rates, persistent economic weakness and subdued inflationary pressures means investors could favor selling it against higher-yielding investments like the Australian and New Zealand dollars. Against the dollar though, the euro is expected to trade in a 10-cent range between $1.25 and $1.35, with the bottom end tested whenever euro-zone concerns intensify and the upper end neared whenever these concerns ease. Citi also forecasts yen weakness next year but the Federal Reserve’s low interest rate policy means the slide will be limited to about Y85 against the dollar, from around Y82.85 currently.

    BNP PARIBAS: The dollar is set to resume its downward trend next year as U.S. policymakers reach a deal to avert going over a so-called fiscal cliff of automatic tax rises and spending cuts and as the Federal Reserve continues to ease monetary policy. Low U.S. interest rates will also prevent any sustained weakness in the yen, BNP Paribas says, forecasting a drop in the dollar to Y75 by the end of 2013. It adds that an improved outlook for the Chinese economy bodes well for the commodity-linked currencies of Australia, New Zealand and Canada.

    UBS: The dollar is likely to be the best-performing major currency next year, UBS says. Why? First, because the U.S. economy is expected to grow by 2.3% next year while the economies of the euro-zone, U.K. and Japan stagnate or experience weak growth at best. But also because it thinks the Federal Reserve’s latest round of quantitative easing is already largely priced in by financial markets, unlike in the case of the European Central Bank, Bank of England and Bank of Japan, which are all expected to undertake further balance-sheet expansion next year. The Swiss bank sees the euro weakening to $1.20 against the dollar by the end of 2013 from about $1.30 now, with the yen weakening to Y85 against the buck.

    JP MORGAN: The tough trading conditions look set to continue in 2013, JP Morgan warns, particularly if currency managers stick with the so-called carry trade of selling lower-yielding currencies against higher-yielding ones. “Industry returns would only reach 2% as a best case if the carry focus persists, since [developed market] and emerging market [interest] rates are so low and many central banks oppose currency strength,” the U.S. bank says. It recommends currency managers adopt short-term trading tactics, where higher yield currencies are bought or sold depending on the economic fundamentals of a country.

    SOCIETE GENERALE: The foreign-exchange market is expected to “enter a secular dollar uptrend” from mid-2013, Societe Generale says. “Both the Federal Reserve and European Central Bank are on hold for ‘a really long time’ but the ECB faces bigger economic problems and growth divergence will favor earlier Fed tightening and a stronger dollar from the second half of 2013 onwards,” it says. The French bank expects the euro to weaken to $1.19 against the dollar by the end of next year, around 8% weaker from current levels.

    DANSKE: With major central banks expected to continue easing, a strong environment for pursuing carry strategies has been created, the Danish bank says. “It is just a matter of selecting the right carry currencies to be funded in either the yen or dollar,” it says. Against this backdrop 2013 should be a good year for Europe’s emerging market currencies, Danske says. “Based on our expectation that the aggressive monetary easing by the major central banks will continue, there is good reason to be positive about the outlook for EMEA [Europe, the Middle East and Africa] foreign-exchange markets,” it says. The Russian ruble, Polish zloty and Hungarian forint look set to benefit the most, it says.

    1. > Yeah yesterday I was likeminded to sell, but after watching the price action from asia & europe I was not convinced it was ready to go down yet. Particularly the moment it cracked the topside after London open I said no way…too early to sell, and too late to buy into the market…

      1. > In retrospect it wasn’t too late to buy at that point in time, but I wasn’t mentally agile enough to switch my bias to longs so stayed out of the game

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