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Forex TRading StrategiesMarket treading water ahead of key data later this week - focus on rates or on global imbalances?
JPY may be a bit weaker due to speculation of capital flows related to US bond issuance.
MAJOR HEADLINES PREVIOUS SESSION
ABC Weekly Consumer Confidence improved to -8 from -9 and was the highest since last August
Australia Consumer Confidence improved to 2.6% in January from -2.7% in December, but was down -12.8% on a year-on-year basis.
Japan's Official Reserve Assets grew to $846 Billion in December from $843.3 Billion in November
UK Nationwide Consumer Confidence for December fell to 96 vs. 99 expected and 101 in November
Australia Job vacancies fell -3.8% in November vs. +0.7% expected
China's Total Exports grew 18.2% in December on a year-on-year basis and Imports grew 22.2% - vs. 20.0% and 23.3% expected, respectively
China's December Trade Surplus in December was 11.01B vs. 11.63B expected and 10.53B in November
China Q4 Entrepreneur Confidence Index fell to 125.4 vs. 127.6 in Q3
Japan Leading Economic Index for November out at 60.0% as expected
JPY tended on the weak side overnight, with EUR/JPY rising again toward 138.50 resistance and USD/JPY rising as well.
THEMES TO WATCH UPCOMING SESSION
An interesting confrontation of themes ahead as we look at whether the market is most interested in focusing on the Fed's "incoming data" and whether the EuroDollar STIRs price in a hike here or a hike there or whether the focus shifts more to the global imbalance theme after we've got rumors of what the Chinese will do with their quickly growing piles of greenbacks. Chinese officials have explicitly stated that they won't sell current USD reserves, but other sources indicate that diversification will be a must going forward - meaning plenty of pressure on the greenback at some point. Another interesting idea being tossed around is that China might like to use some of its reserves for building a strategic oil stockpile - the question is whether there is any surplus oil in the system for China to buy!
Add to this the international capital flow situation, which gets increasingly interesting from today with the US auction of $13 Billion of 5-year notes. This and other massive bond issuance coming from the US over the next month - up to $100 billion by mid-February - could support the USD if foreign appetite for US treasuries is still robust. It was after all, Japanese investors' appetite for higher yielding instruments abroad that pushed the JPY weaker in the second half of last year), then we could see a move higher in USD/JPY to at least resistance as the flows would push the USD higher. The US yield curve
is beginning to make gains versus Europe again.
So these themes make for an interesting mix as we head into the US Trade Balance figure tomorrow and PPI inflation data and Retail Sales on Friday. The key will be in the markets reaction to the data to identify where the focus is. Meanwhile, we also have oil markets to consider with today's weekly supply data from the US. The trend is clearly down in the USD, but the most recent move in USD weakness is beginning to get stale if we don't see some follow through very soon - so we'll probably have a pivot point by Monday.
Note: the support/resistance levels used in the matrixs of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.
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