FXstreet.com (Barcelona) - The FX market continues to show some
promising volatility, with the ultra-depressed levels from late
2012 giving way to more classic cross moves, "with plenty of swings
yet fairly dominant trends" FXWW founder Sean Lee describes the
current conditions. The Yen is the exception, showing no signs of
pausing its counter-trend progress.
As per the rest of G10 currencies, the notorious weakening of the
CHF continues to be the star theme so far, together with the
mentioned Yen recovery. The Euro has failed to live up to the
upside expectations after some verbal intervention from Eurogroup
President Jean−Claude Juncker,while the US Dollar is holding pretty
well after recent losses.
As Sean Lee notes: "These are markets for buying dips and selling
rallies in various 'legs' of the crosses and real FX traders will
be having a ball..." meanwhile, NAB observes: "We continue to see
funds flowing out of non-Eurozone European currencies and which
have acted as safe haven magnets during the Eurozone's existential
travails of 2011 and 2012."
Referring to the increasing levels of volatility in the markets,
Societe Generale FX strategist Sébastien Galy, believes "is an
important sign not of impending doom, but of a global reallocation
Mr. Galy expands: "Old regimes are dying and FX is the first sign
of this process. We are seeing this in JPY, are starting to see
this in CHF and will eventually see it happen in USD, hopefully in
H2 or Q4 as the US economy steadily recovers."
As capital flows make its way out of low-risk profile territories,
"the allocation between bonds and equities as ultimate 'domestic'
claims to global growth will eventually also become more unstable"
the analyst notes. For now, "these wobbles will be crushed as
monetary policy remains expansive globally, but the process
started. FX is the warning sign" Sébastien concludes.
But on the global scheme of things, the threat of downgrades is
never too far, which may easily alter the apparent stability of
risk assets. One clear example was seen yesterday, when a fresh
warning from the ratings agency Fitch was issued to the US, stating
that a debt ceiling failure would likely cause a ratings review.
"Monday night's verbals from US President Obama and then the
response from some Republican Congressman is further raising unease
with respect to the likelihood of the debt ceiling being lifted
before the 'mid-Feb to early-March' drop dead date range suggested
by outgoing US Treasury Secretary Tim Geithner yesterday" NAB
To make matters worse, the world bank re-assessed its global growth
projection for 2013, now forecasting 2.4% vs 3% last.
Giving some clues on the possible short term direction in the most
followed pair in the FX market, Valeria Bednarik, chief analyst at
FXstreet.com, sees the hourly chart retaining a bearish tone ahead
of Europe, "with 20 SMA above current price and indicators heading
lower below their midlines..." although she says the downside still
seems tough; "break below the Fibo level however, should put the
pair under pressure, with 1.3180 strong support level then at
sight" she adds.