IronFX | Dec 31, 2013 06:16AM ET
Active right to the end
The end of the year is usually a placid time for markets, but this year there have been some dramatic moves right down to the end. The range for the year in USD/SEK was 9.4% (from 6.2732 to 6.8654), but just yesterday the range was 2.0% or 21% of the entire year’s range. Similarly with NOK, the range for the year was 15.5% and the spread yesterday was 1.5% or 10% of the entire year’s range in one day. NZD/USD also had a 1.3% range yesterday, quite substantial within the context of a 12.9% range for the year. In Sweden’s case the movement was clearly related to the news flow (higher-than-expected Swedish retail sales in November) but the sharp moves in other currencies suggest that something more widespread is afoot.
True, yesterday’s US pending home sales figure was somewhat disappointing, but overall the US economic indicators remain not only broadly positive but far more surprisingly positive than in most other countries, and that’s usually what counts (see top graph). Also the implied rates on Fed Funds futures have come down slightly – they peaked last Thursday and are down 5-6 bps in the 2016 region since then, but this is still substantially higher – 17 to 27 bps – than before the FOMC meeting on 18 Dec (bottom graph). Yet the dollar is quite mixed since then, up against four of its G10 counterparts (JPY, NZD, CAD and CHF) and down vs four (SEK, NOK, GBP and EUR). (It’s unchanged vs AUD.)
Why has the announcement of tapering, the better-than-expected US economic indicators and the sharp upward revision to Fed Funds expectations failed to boost the dollar? This goes against all fundamental logic. I can only surmise that this is end-of-year distortions. Over the last five years, the dollar has on average weakened in December vs EUR, CHF, NZD and AUD (but gained vs GBP, JPY and CAD). It seems likely that there are some seasonal factors at play here that may well be unwound in the New Year, particularly after European banks finish repatriating their funds in preparation for next year’s Asset Quality Review. I look for the dollar to resume its upward climb in the new year.
A quiet New Year’s Eve is expected today since the calendar is light once again. We have releases coming out only from the US. The S&P/Case-Shiller home price index is expected to have risen 13.45% yoy in October, not much of a change from 13.29% yoy in September. The Chicago purchasing manager’s index for December is forecast to fall to 60.5 from 63.0, while the Conference Board consumer confidence index for December is estimated to rise to 76.3 from 70.4. All told however I would expect to see position-squaring dominate the market. After a few down days, we could see some dollar buying Tuesday.
On New Year’s Day the only indicator expected out will be China’s manufacturing PMI for December. The figure is forecast to slightly fall to 51.2 from 51.4.
The Market
EUR/USD
• Support: 1.3710 (S1), 1.3625 (S2), 1.3540 (S3).
• Resistance: 1.3810 (R1), 1.3893 (R2), 1.4170 (R3).
EUR/JPY
• Support: 142.80 (S1), 140.88 (S2), 139.67 (S3).
• Resistance: 145.00 (R1), 147.00 (R2), 150.00 (R3).
GBP/USD
• Support: 1.6465 (S1), 1.6395 (S2), 1.6320 (S3).
• Resistance: 1.6575 (R1), 1.6735 (R2), 1.6885 (R3).
Gold
• Support: 1187 (S1), 1180 (S2), 1155 (S3).
• Resistance: 1212 (R1), 1224 (R2), 1251 (R3).
Oil
• Support: 98.90 (S1), 97.25 (S2), 95.35 (S3).
• Resistance: 100.60 (R1), 101.90 (R2), 103.15 (R3).
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