FOPLADE- Análisis Financiero


BoC EXPECTED TO MAKE LIMITED CHANGES TO STATEMENT USD on stronger footing, reversing its losses from yesterday.
-BoC will be key USDCAD event; we do not expect major changes in Carney’s tone.
-UK inflation surges above expectations; providing a lift to GBP.
-Doubts over ability of EUR to ever gain top reserve currency status weighs on EUR.
-Another jump in Chinese yields; and Minister of Commerce pushes for yuan stability.

FX Market Update

• The USD is on stronger footing today. Equities and commodities are generally weaker as markets continue to be fairly nervous. The one exception to USD strength is a strong GBP on the back of inflation fears. The UK released CPI that was well above expectations, increasing speculation that the BoE will have to turn hawkish even as the economic recovery is still fragile. In addition, Greece and Eurozone weakness continue to be a focus for traders, limiting the recent attempts by EUR to push higher.
• There is also some focus on whether or not the EUR will really prove to be an alternative to the USD as a reserve currency. As sovereign risk weighs on the Eurozone some worry that it diminishes the prospects for EUR. We would argue that the shift to a new reserve currency will take years if not decades to play out and that currently there is no real alternative. The US is the only country to host the deepest capital markets in the world combined with a freely floating exchange rate. Accordingly, we would expect it to retain the reserve currency status for many years to come. Still, the potential for a shift to another currency will still weigh on the USD as when an alternative does emerge it will remove significant buyers of USD.
• Looking at the 52-week high and low versus today’s level provides further evidence that the market is notably bullish commodity currencies, neutral EUR and JPY and neutral to bearish the USD. USDCAD is just 1% from its 52-week high and AUD is only 2% away; however EUR and JPY are 6% and 7%, respectively and the USD is 4% from its low. Accordingly, with both CAD and AUD flirting with new highs as the other currencies struggle well below theirs it highlights the momentum behind them. We, like many, are also bullish the commodity currencies against both the USD and EUR.
• Today, the somewhat volatile TIC data will be released, which will provide an update on who is buying Treasurys and to what extent. Earnings will also be important today, with Citigroup releasing at 8am (EST) and IBM after the North American close. C.S.

Americas

USDCAD (1.0290) • USDCAD has retraced yesterday’s losses as we lead into the Bank of Canada release. We expect the BoC to sound slightly more upbeat than it did in December, but we do not anticipate any major changes. Accordingly, we expect the overnight target to remain at 0.25%, the BoC to reiterate that they are on hold until the end of Q210 and that commentary regarding CAD is in line with what the Bank has already said. CAD is just 2% stronger today than it was on December 7th (the day before the last meeting) and CERI, the BoC’s trade weighted index, is 3% stronger; however we would argue that some of this strength is due to Type 1 (fundamental factors), which requires less of a response by monetary policy. The top chart highlights the close correlation between CAD and the CRB index over the last 12-months. Accordingly, we expect the BoC to continue to cite CAD strength as a key risk going forward, but we do not expect them to firm their tone with regards to CAD strength. Currently, the market is pricing in a 97% change that the BoC increases interest rates at the July 20th meeting. • Technicals, remain bearish USDCAD. Support lies at the October low of 1.0207; while resistance comes in at congestion of 1.0320 followed by the 21-day moving average at 1.0401. C.S.

Europe

EURUSD (1.4300) • EUR’s attempt to rally continues to fail and the currency is testing a break below its 200-day moving average of 1.4293. A close below this level would be bearish and open up a test to the psychologically important 1.4000. • Weighing on EUR today was a disappointing ZEW (economic sentiment), coming in at 46.4 in the Eurozone (cons. 48) and 47.2 in Germany (cons. 50). In addition, as we mentioned in the first section there is some focus on whether or not the EUR will really prove to be an alternative to the USD as a reserve currency. • Today, EURGBP has reached a new four-month low and looks technically weak. It is now trading below its 50, 100 and 200-day moving averages (0.8969, 0.9002 and 0.8844, respectively); and has broken below support of 0.8835 that held through the fall. The next level of support lies at the July highs of 0.8690/0.8700. C.S.
GBPUSD (1.6340) • Sterling is outperforming noticeably today, as it is flat against the USD and up 0.7% against EUR. The currency has also broken above its 50 and 100-day moving averages (1.6318 and 1.6311, respectively); a close above these levels would be near-term bullish for GBP. • Inflation data came in well above expectations, with headline surging 0.6% m/m and 2.9% y/y and core increasing a surprising 2.8% y/y. RPI also jumped far more than expected. Accordingly, there are clear inflationary pressures in the UK that will complicate matters for the BoE. With headline at 2.9%, it is just 0.01% away from where the Governor will need to write his letter of explanation. We have long expected the BoE to remain one of the more dovish central banks; however should we see a repeat of these inflation pressures next month (noting that the January reversal of the VAT will complicate things), the BoE will be placed in a difficult position. The central bank will have little choice but to focus on controlling inflation even as growth remains fragile, but we are not convinced this is the recipe for currency appreciation. • Also benefitting sterling is the official news that Kraft will buy Cadbury for $19.7billion. C.S.

Asia / Oceania

USDJPY (90.85) • The yen is flat today. The headlines overnight surrounded the announcement of the JAL bankruptcy and the potential impact of fuel hedges being sold off and the cash raised being repatriated back (these are estimated to be worth over $400m). We doubt this will have a real impact on USDJPY going forward. • Japanese consumer confidence was disappointing, dropping from 39.9 in November down to 37.9 in December. C.S.
USDCNY (6.8277) • The yield on the one-year auction increased by a further 8bpts to 1.9264%. Accordingly speculation that monetary policy in China is slowly tightening continues to rise. However, comments from the Minister of Commerce, Deming, who said that his “personal view is that a relatively stable yuan is in the interest of the world economy”, has dampened some of the speculation over the currency. Still we continue to believe that authorities in China will soon allow some measured appreciation of the yuan. C.S.

Suggested Reading

Split Views Over Greece: Bond Fears, Stout Euro, Neil Shah, WSJ (January 19, 2010) Swiss Bank Will Stop Providing Liquidity to European Markets, G. Smith & N. Koeppen, WSJ (January 19, 2010) Cadbury and Kraft Agree £11.7bn Deal, FT (January 19, 2010) Inflation Fears Spook Markets, FT (January 19, 2010) Massachusetts Senate Vote Likely to be Close, FT (January 19, 2010) Bank Fee Plan Has Merits But Lacks Financial Clout, Mohamed El-Erian, FT (January 19, 2010) Please consider voting for us in Euromoney's FX Poll 2010 between January 14 and February 26. The link can be found at http://www.euromoney.com/stub.aspx?stubid=92.
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Camilla Sutton, CFA, CMT Sacha Tihanyi
Currency Strategist Currency Strategist
Scotia Capital Scotia Capital
416-866-5470 416-862-3154
Camilla_sutton@scotiacapital.com Sacha_tihanyi@scotiacapital.com



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