FOPLADE- Análisis Financiero.

WEAKER CANADIAN RELEASE, BUT NONFARM IS KEY A weaker than expected Canadian employment release pushes USDCAD higher.
-Nonfarm payrolls will be key input for interest rate expectations and therefore USD.
-Eurozone unemployment rate hits 10%.
-USDJPY threatens long term downtrend resistance.

FX Market Update

Markets are fairly muted as the release of nonfarm payrolls looms. Currencies are generally flat, with GBP outperforming and AUD underperforming. Equities are in positive territory, commodities are mixed and bond yields are generally higher. • Today’s nonfarm payrolls report could prove an important driver for currency markets. Consensus, at 0k, is calling for the first non-negative number since January 2008. With the Fed’s dual mandate combined with the historical pattern that interest rates do not rise until the unemployment rate has not only peaked but is dropping lower, today’s release is of particular importance for those trying to judge the timing of the Fed’s first interest rate hike. A below consensus reading would be USD negative, as it would push out expectations for tighter policy and vice versa. Scotia Economics is calling for an above consensus gain of 50k; such a print would be temporarily bullish for the USD against EUR, GBP, etc., but not necessarily against CAD. See CAD section. • Yesterday, the Fed’s Hoenig (a voting member) sounded fairly hawkish when he commented that rates should rise over time to 3.5% - 4.5% and that the process of returning rates to more balanced levels should begin sooner rather than later. • Yesterday US regulators released a statement encouraging institutions to mitigate their exposure to potential interest rate increases. We think this reflects the reality that interest rates will begin moving higher, but that it does not imply that the timing of tighter policy is imminent. Probably more important for the US and USD is news that the NY Fed, under Geithner’s Presidency, advised AIG not to disclose important payouts to Wall Street. C.S.

Americas

USDCAD (1.0371) • USDCAD dropped significantly lower leading into the weaker than expected Canadian employment release, only to move back to yesterday’s North American close after the release. The unemployment rate remained at 8.5% and the net change in employment dropped by 2.6k (consensus was for a gain of 20k). Though the release is disappointing, employment in Canada has actually held up quite well. • Generally, USDCAD reacts more to US nonfarm payrolls than to the Canadian release, which will leave the USDCAD reaction muted until after 8:30am EST. Considering Canada’s close ties with the US, an above consensus reading on nonfarm could well be good for CAD as a stronger US is good for Canadian fundamentals. • USDCAD is rapidly approaching a test of its 2009 low of 1.0207. Supportive factors for a push lower in USDCAD have been: 1) oil jumping over $80/barrel; 2) relative fundamentals, including the limited sovereign risk associated with Canada; 3) technicals and 4) investors, who needing to be long something have en mass gone into CAD. However, balancing some of these factors is the increase in the US-Canada 2-year bond spread, which has now climbed to -32bpts and is well out of sync with USDCAD. • Technicals have turned increasingly USDCAD bearish. Short and long-term moving averages are all in bearish territory, including the 9-day crossing below the 21-day moving average (1.0430 and 1.0513, respectively). The MACD generated a sell signal on December 23rd (when USDCAD opened at 1.0574). Finally, the bearish break below the November 1.0406 low also implies that momentum is against USDCAD. With an RSI of just 38, it is not into oversold levels. Today’s knee-jerk reaction to nonfarm payrolls, could temporarily change the trend, but we continue to believe that USDCAD is well on its way to parity. C.S.

Europe

EURUSD (1.4286) • EURUSD has been pushed lower on the day heading into the North American session, but has been fairly range bound in Asian and European trading ahead of the US nonfarm payrolls data. The pair is trading near the bottom end of its range and edging closer to support at the 200-day moving average (at 1.4252 today). There was some positive economic data coming out of Germany today, as a better than expected export result (and weaker imports) helped the German trade balance move to its highest surplus level since June of 2008. Spanish Premier Zapatero, who now holds the rotating EU Presidency, proposed that the EU increase its policing of members who fail to meet their obligations under a new 10-year plan that is intended to boost EU competitiveness (see readings). Any success on such attempts could help to boost the perceptions of EU and Eurozone cohesiveness, something that has suffered through the recession and is factor that weighs on EUR. Finally, and on a not so positive note, newly released employment data has shown that the Eurozone’s unemployment rate hit 10%, the highest level since the euro’s inception. S.T.
GBPUSD (1.5999) • Sterling is an outperformer today, trading up 0.4% against the USD and leading the majors. This still leaves GBPUSD trading on either side of the 1.60 level with a 1.5 month downtrend in place. Producer prices in the UK rose by 0.7% in December, the highest spike in over a year and a half, helping the y/y rate of change in core producer prices (currently at 2.6%) to push above the five year average rate of inflation. S.T.

Asia / Oceania

USDJPY (93.29) • USDJPY has seen its intraday weakening trend cut after briefly pushing through its 200-day moving average from below for the first time since July. This places USDJPY back within striking distance of the massive 2.5 year downtrend from the high of 124.13 from June of 2007 (see chart) which comes in today near 94.25. The new Japanese Finance Minister Naoto Kan continued to lay out the government’s current approach to the yen, which seems to be a synthesis of his predecessor’s view that currency values should be determined by markets, and the practical concern that too strong a yen in the near term will place unwanted deflationary pressures on the country’s economy. Kan has said that he reserves the right to act on currency strength in “emergency situations”; the market seems to be taking his stance into strong consideration as JPY remains on its sharp depreciatory trend against the USD. S.T.

Commodities

Oil ($82.50) • Crude is down slightly on the day and has faced more downside pressure than upside support intraday as oil stabilizes near the highest level since October of 2008. Crude is on track to record its fourth weekly gain, as its bullish trend remains intact. One needs to look back to the first quarter of last year to find a weekly string of gains longer than four. S.T.
Gold ($1122) • Gold is weaker today as the USD shows stability ahead of today’s nonfarm payrolls data. Late week softness in the metal has cut into the strong gains that followed with Monday’s 2.2% price surge. A very solid nonfarm payroll number risks producing sharp USD strength, a factor which could further cut into gold’s weekly gains. S.T.
Suggested Reading
Spain aims to bring EU states into line, Tony Barber, FT (January 7, 2010) Japan goes into damage control on yen, Michiyo Nakamoto, FT (January 8, 2010).
Federal Reserve warned on interest rates, Krishna Guha, FT (January 8, 2010) Big Deficits Cloud Britain’s Future, Alistair MacDonald, WSJ (January 8, 2010) New York Fed Told AIG to Shield Payouts, Serena Ng & Michael Crittenden, WSJ (January 8, 2010)




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The Plaza Futures Group



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