FOPLADE- Análisis Financiero.

USD MIXED LEADING INTO EMPLOYMENT FRIDAY US data today will provide a solid summary of the economic landscape.
-USDCAD approaches important 1.0750 resistance.
-UK Jan. Manufacturing PMI jumps to 56.7, however GBP still under pressure today.
-RBA expected to raise rates 25bps to 4%.

FX Market Update

Markets are firmer as we move into the North American session. Equities are pointing to a positive open, commodities are higher and the USD is mixed. An expansionary PMI release from China and strong US data last week have provided some relief to the risk aversion theme. However, for now markets remain nervous. • As the top chart highlights, beginning in late November, the USD led the recent move. EUR collapsed lower, as equities and commodities initially rallied. The CRB index peaked on January 6th, oil on January 11th and equities on January 19th, well after the November 25th EUR peak. Accordingly with these assets moving in tandem and no signs of stabilization there are also no clues as to which will lead markets from here. We expect that the first step towards stabilization is some resolution to the Greece issue and improving investor sentiment. Earnings to date have been reasonable with 222 of the S&P500 having reported. Of these 78% have come in above expectations and well above Q408 levels. Markets’ have paid little attention to the recent positive news and instead risk aversion on the back of the potential for global monetary tightening, ongoing sovereign issues in Europe and uncertainties in markets have all weighed on currencies and given the USD a lift. Even though we believe that we will see further USD weakness in the months ahead, it is still too early to pick a top in this USD rally. • This week’s CFTC speculative data confirmed that traders are increasingly favouring the USD and there is a diminished appetite for adding portfolio risk. The net short EUR position now stands at $7bn (39.5k contracts). This is within 1k contracts of the largest net short EUR position recorded in 2008; achieved in mid-September, a full month and a half before the EUR bottomed. Evidence of risk pairing in commodity currencies was obvious as both the net long AUD and CAD positions were cut. The net long CAD holding now stands at $2.4bn. We will continue to look to this data for hints that market sentiment is changing. This week’s data simply confirms that for now speculators are increasingly favouring long USD positions. • Focus this week will quickly turn to Friday’s employment reports, where non-farm payrolls are expected to increase 13k and the unemployment rate is expected to remain at 10%. Also important could be developments at this weekend’s G7 meetings; where currency stability is widely expected to be discussed. Today, personal spending, incomes, PCE and ISM manufacturing will provide a significant update to the underlying sectors of the economy. C.S.

Americas

USDCAD (1.0711) • CAD hovered on either side of Friday’s North American close in the Asian and European sessions and is entering the North American session essentially where it closed on Friday. • There is no data in Canada until Thursday, so USDCAD will take its cues from the broader market moves. • On Friday we released a new forecast, but made no changes to the outlook for USDCAD. We are in the midst of a risk aversion led USD rebound and feel that USDCAD could move higher in the near-term before it settles; however as we look out to mid-year, we believe that USDCAD will be at lower levels than it is at today. The combination of the ongoing recovery, rising commodity prices and Canada’s relative economic position should all weigh against USDCAD. In the near-term, technicals are hinting that a break above 1.0750 would indicate ongoing bullish pressure and would open up a test of 1.0870, but until then we will look for USDCAD to remain within its 1.0225 to 1.0750 range. C.S.

Europe

EURUSD (1.3897) • EUR is better bid, trading up 0.3% against the USD, though EURUSD still remains well under 1.40 and is alternating between a 1.38 and 1.39 handle today. CFTC positioning data continues to show no relief in sight for EUR as the net short position on EURUSD fell to near a four year record net short position (see graphic) as longs continue to exit the market and shorts build rapidly. Final January PMI manufacturing came in at 52.4, marginally higher than the previous estimate. There is still no evidence, technically speaking, that EURUSD has turned a corner, however government bond yields have come down significantly on the Greek 10-year since peaking at over 7% last Thursday (now currently sitting at 6.61%). Spanish and Portuguese bond yields have also come in today, creating some sense of hope that EUR pressure is abating. S.T.
GBPUSD (1.5879) • Sterling is the most obvious underperforming currency today, off 0.7% against the USD despite an increase in the UK’s January PMI from 54.1 to 56.7 as GBPUSD collapses back down to near a 3½ month low. Over the weekend Shadow Chancellor of the Exchequer George Osborne suggested that the UK risks a Greek style budget crisis. Though this comment can be chalked up to positioning for the upcoming election, the UK is one of the developed nations that needs most to display concrete plans for fiscal restraint and budget reduction in the coming years, lest GBP risks suffering (though perhaps less sharply considering current levels) from the same negative sentiment that has hit EUR. This week’s Bank of England policy announcement (Thursday) is a key risk event for GBP, though market consensus still suggests no change on rates or asset purchases. S.T.
EURSEK(10.1576) • Sweden is rallying against both EUR and the USD, up 0.9% and 1.1% respectively against the two. SEK buying in Europe had accelerated after the release of the January Swedbank PMI survey which showed the index moving to 61.7 from 58.2, the highest level of expansion since February of 2007. Measures of current production and orders (including export orders) and stocks are increasing rapidly, however the employment sub-index remains below 50 and has generally stagnated over the past two months. S.T.

Asia / Oceania

USDJPY (90.31) • USDJPY is near flat on the day after recovering from a very weak open in Asia. Buying support for USDJPY is seen initially near 89.65 while 90.50 looks to provide some constraint to the upside despite Friday’s temporary trading to near 91. S.T.
AUDUSD (0.8822) • AUD is off 0.2% against the USD, continuing its sharp weakening trend as equities remain under pressure, the MSCI World equity index has fallen 8 consecutive days through Friday. The RBA is expected to raise rates to 4% in tomorrow’s Asian trading session. This is widely expected and mostly priced into the currency at this point, however the OIS market is not making as certain a bet (though still well favouring a bias to an increase in rates) as market consensus that the RBA will move 25 basis points. The details of RBA commentary will be important and will need to be quite hawkish if the market is to stem the AUDUSD selloff that has driven the pair to a 1 month low. S.T.
USDCNY (6.8275) • The Chinese PMI manufacturing indicator for January fell to 55.8 from 56.6 though the HSBC PMI actually rose from 56.1 to 57.4. Though these two measures conflicted somewhat, the manufacturing sector in China still remains unarguably in a strong expansionary mode. Advisor to the PBoC, Fan Gang, commented today in Beijing that while inflation is a concern for the country, asset bubble are the real worry on capital inflows and excessive financial system liquidity. S.T.

Suggested Reading

Asia manufacturers see robust growth, Justine Lau, FT (February 1, 2010) EU call for Greece to cut public sector pay, Tony Barber, Kerin Hope, FT (January 31, 2010) Crack Spreads Widen as Refineries Close in the U.S., BB (February 1, 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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