FOPLADE- Análisis Financiero.

MARKET PUSHES THE USD TO A THREE WEEK LOW USD weaker following Friday’s nonfarm, reflecting less bullish FED rate outlook.
-CAD underperforming, but USDCAD is still approaching its 2009 low of 1.0207.
-Chinese exports jump 17.7% y/y; bringing CNY appreciation one step closer.
-Venezuela devalues by 50%, to 4.3 and implements subsidized 2.6 peg for imports.

FX Market Update

The USD is on a back-step today as equities are moving northward in Asia and Europe, while US equity futures look positive and the 2yr Treasury has remained at Friday’s rather repressed levels which followed the release of the disappointing December nonfarm payroll data. The mood of the market to begin this week seems to be generally positive following the release of Chinese December trade data which showed annual export growth expanding rapidly for the first time in over a year. To the degree to which China’s exports can be used as a proxy for the health of global trade, this is indeed reason for celebration.
• It is not a straight forward story of commodity currencies doing well despite the fact that commodities are all stronger today from industrial to precious metals and oil. NOK and AUD are solidly gaining, however GBP is also leading and EUR is not all that far behind. NZD and CAD are still up though underperforming, particularly the latter, and the yen is also lagging.
• Friday’s disappointing nonfarm data pushed the USD lower, setting up the conditions for today’s weakness as the greenback was sold through Asian trading before finding support in Europe. Nevertheless, the USD index has broken to its lowest point since mid-December and risks recapturing stiff downside momentum. The USD’s fortunes today reflect nonfarm data impact on the preeminent short term USD support factor, the expectation of Fed rate moves in 2010. The August Fed Funds futures contract is now priced at its lowest yield (0.375%) since December 1st (see graph), a dynamic also reflected (though to a lesser degree) in longer dated 2010 contracts.
• Though the Friday data came after the time period covered by CFTC positioning data (which covers up to Tuesday) we can see that the strongest speculative USD buying impulse seems to be dying down (see graph). The most recent CFTC data shows that the value of the USD net long position was cut on bullish shifts in the commodity currencies versus the USD. This information combined with spot price action since Tuesday points to a lack of conviction on bullish USD sentiment past the impressive December moves. Additionally, rate support for the USD is ebbing, compounded by a generally dovish recent speech by Fed Chairman Bernanke (regulation, not low rates was to blame for the housing bubble) which sets up a weak interim USD outlook, in line with our forecast.
• In the US the Fed’s Beige book, retail sales, CPI and industrial production will provide a busy data week, with much food for thought for US monetary policy coming from Beige Book and CPI. S.T.

Americas

USDCAD (1.0270) • CAD is underperforming despite being up 0.3% against the USD. While financial market variables and short term FX trends suggest that CAD should be positioned more at the upper end of the performance charts, Friday’s employment disappointment (eventually offset by the impact of nonfarm) and the proximity to the 2009 low in USDCAD are proving to be key constraints to CAD strength today. Technically the weight still remains firmly placed on USDCAD as we continue to look for increasingly aggressive challenges at the 1.0207 2009 low. • With the market once again trading CAD aggressively, we have to wonder what policymakers think about current trading levels. Deputy Governor Timothy Lane will provide a speech today, focused on Canada’s housing market through the recession and the recovery, though the market may care more about potential currency comments. Today’s Q4 Senior Loan Officer Survey and Business outlook data will also be important as the Q3 release showed great optimism on future sales and a lower pace of tightening in credit conditions. S.T.

Europe

EURUSD (1.4540) • On a broadly weaker USD, EUR has climbed back up over 1.45 for the first time since December 17th. This comes even as Moody’s warns that unless Portugal takes “meaningful and credible steps to get the deficit under control” it will face a downgrade. We think that EUR’s ability to rally even as Portugal is in the headlines highlights that sentiment towards EUR has stabilized, and that sovereign risks are now well priced into the currency. • EUR technicals have turned bullish, with most studies now providing buy signals (MACD, DMI, moving averages) and the candlestick pattern looking increasingly firm. We hold a Q210 target of 1.55 for EUR. • The ECB will announce their interest rate decision on Thursday January 14th. C.S.
GBPUSD (1.6180) • Sterling has broken back up above its 200-day moving average (1.6119). Resistance comes in at the January 4th high of 1.6241, followed by the 100-day moving average at 1.6310. C.S.
EURCHF (1.4770) • The three-week drop in EURCHF slowed today as the new SNB President, Hilderbrand, commented that they are monitoring “foreign exchange market developments closely”. C.S.

Asia / Oceania

USDJPY (92.35) • Japanese markets were closed today (as the country celebrated the national coming of age holiday). USDJPY has dropped from its recent high of 93.77 and the 200-day moving average has held well as support (93.42). The reaction to US jobs combined with China’s strong export growth have investors adding risk to their portfolios today and is weighing broadly on the USD. Excluding the USD, JPY is the worst performing currency. C.S.
AUDUSD (0.9310) • On strong fundamentals (ANZ Job Ads increased 6%), a broadly weaker USD and strong export numbers from China, AUD has gained 0.8% against the USD. The near and medium-term prospects for AUDUSD are strong and we would expect the currency to break above the 2009 high of 0.9406 in the near-term. C.S.
USDCNY (6.8263) • The year-over-year growth in Chinese trade far surpassed expectations, with exports jumping to a 17.7% gain y/y and imports jumping 55.9% (expectations had been for gains of 5.0% and 32.5%, respectively). As the bottom chart on page 1 highlights, the volume of exports is approaching levels last seen moving into the financial crisis, which points to a global recovery that is well under way. We have maintained for some time that the larger the improvement in exports the sooner Chinese authorities will be comfortable with allowing some appreciation of the CNY. We are clearly moving towards this. In addition, strong exports should give those investors adding risk to their portfolios some comfort and it is bullish for CAD and the other commodity currencies. C.S.


Commodities

Oil (83.90) • Oil has reached a new 14-month high of 83.95 today. The rally in the commodity is supportive of a strong CAD. The 30-day rolling correlation between CAD and oil has climbed back up to 0.84. C.S.

Suggested Reading

Portugal Warned of Threat to Rating, Peter Wise, FT (January 11, 2009) The Fed and the Crisis: A Reply to Ben Bernanke, John Taylor, WSJ (January 11, 2009) Devaluation Sparks Chaos in Caracas, John Lyons & Darcy Crowe, WSJ (January 11, 2009) In China, Fear of a Real Estate Bubble, Steven Mufson, FT (January 11, 2010)
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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The Plaza Futures Group



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