FXstreet.com (Barcelona) - Risk seeking trades were the
triumphant strategies last Friday, with the S&P 500 closing
+0.5% and the EUR/USD bouncing vigorously from the 1.30 handle.
Despite the December NFP number was in line with consensus, it fell
short from the higher 'whisper' number after the strong number in
the ADP employment the day before. Supportive of the risk rally had
been the non-manufacturing ISM report in the US too, exceeding
expectations from 54.7 to 56.1.
As NAB notes: "Friday's US employment report conformed to
expectations in most respects, overall non-farm payrolls adding
155k with minor upward revisions to the prior two months. The
unemployment rate ticked up to 7.8% vs 7.7% expected, with the
November reading also now 7.8% vs 7.7% originally reported. Average
hourly earnings were 2.1% up on a year ago up from 1.9% in November
and back to their best levels of the past 12 months while average
weekly hours rose to 34.5 from 34.4."
The US Dollar had been recently well bid into the new year as the
mere consideration of some Fed members to end QE3 before year end
saw some wild re-positioning in the market during the first week of
thin trading. According to Kathy Lien, co-founder at
BKAssetManagement: "While the Federal Reserve is not expected to
make a decision about ending QE3 for at least next 4 to 6 months,
the fact that they are even considering terminating QE3 in 2013 is
in our opinion, a game changer for the USD..."
Kathy thinks that going forward, investors will start to pay
increasing attention to the U.S. economic releases. The analyst
believes that if improved fundamentals keep up, the possibility of
an end to QE may be taken more seriously. As a result, "we expect
U.S. economic reports to have an increased importance to the
greenback, which means larger volatility" she says.
So what can we expect in the EUR/USD this week? Near term,
institutions like UBS expect the recent 1.27-1.33 range in EUR/USD
to keep holding for now. "Only when Madrid does apply for a
bail-out and the ECB commits to more aggressive balance sheet
expansion should euro bears start putting on structural short
positions" the bank said.
Drilling down into the realistic 1.27-1.33 projections from UBS, a
EUR/USD recovery above 1.3150, according to Marc Chandler, global
head of currency strategy at BBH, may expose a retest of 1.33,
failure to break on January 2.
As Marc notes: "The fact that the euro held the $1.2980-$1.3000
area post NFP is important as it corresponds to retracement
objectives and the 50-day moving average. The bounce before
market's close on Friday was also constructive, which enhances the
chances that EUR/USD is giving a false sell signal, generated by
the sharp losses in a few days. Recovery past the $1.3115, would
strengthen our confidence and a move above $1.3150 would set up for
another test on the $1.33 area."
Meanwhile, Sean Lee, founder at FXWW, warns of solid EUR/USD
selling orders near 1.3160/75, suggesting it should be toppy around
the level. The analyst tips that the orders are from last week,
adding that "when orders don't get cancelled on a Friday night it's
usually a sign that the sellers are quite committed..." Sean
confirms that dealers from two major banks are also suggesting
sellers are quite solid near 1.3160/75. If bearish the EUR/USD,
that could be a good entry level, he said.
Valeria Bednarik, in-house technical analyst, also gives her take
on the pair, saying that while the lower chart shows price above 20
SMA and momentum heading higher, "bigger time frames show
indicators barely beginning to correct extreme oversold readings."
Under the current picture, she sees the pair short term bullish,
although "the longer view has turned bearish with 1.3150 now as key
level to watch in case of the recoveries..." Failure at 1.3150 "may
drive the pair sub 1.30" she adds.