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Daily Report by Mellon Foreign Exchange
Key Points - USD-JPY stabilises after last week’s losses. - EUR-USD downside tentatively favoured, but US data (especially on housing) could be crucial this week. - US NAHB index and UK RICS survey feature today but both are due after European hours. Market Outlook USD-JPY remained soft at the Asian open this morning, but eventually recovered to briefly nudge through Friday’s high at 116.50. A move through the 116.50-80 area is needed to suggest some stabilisation after the scale of the sell-off seen since the middle of last week. Latest IMM data showed no change in the record net long position on USD-JPY, although quite simply this was because the latest reading (Tuesday’s close) was taken before the USD-JPY sell-off occurred. EURUSD net short positioning on the other hand fell sharply, reflecting the fact that EUR-USD had rallied ahead of the FOMC meeting. Some USD-JPY stabilisation (117.60 at least) is favoured this week and the market is likely to try and build a short-term base ahead of 115.00. However, volatility is likely to continue for a while yet and rallies in USD-JPY could run into various bouts of selling by those who missed out initially owing to the speed of the move lower. EUR-USD looks like being steadier, although downside is tentatively favoured this week as long as US data releases continue to toughen up Fed rate hike risk for Q1 and beyond. 1.1930 needs to give way to open up some element of downside risk, although below 1.1850-1.1900 is also required to open things up further. US housing releases this week (see below) could be important in determining direction. Day Ahead US – the National Association of Home Builders (NAHB) Index (due after the European close) is the main data feature today after having fallen sharply last month to its lowest level since May 2003. The index is a combination of measures relating to current and expected sales and the number of prospective buyer inquiries. Key focus today will be whether last month’s sharp fall, coming after some weaker showings since the highs of May-Jul, was an outlier or a clear sign that activity is indeed starting to tail off sharply. If a clear scenario does emerge it could have ramifications for both FOMC policy expectations and the USD, although the market will also want to see other housing data (new home sales and housing starts are also due this week) before making any major conclusions. UK – the RICS house price survey is due tonight and there is likely to be a further recovery in prices (possibly into positive territory) from the very negative levels seen earlier in the year. The RICS house price survey headline number can swing quite dramatically as it merely asks the simple question of whether prices are down, up or unchanged over the previous three months. It is a ‘directional’ survey rather than one that measures the actual ‘magnitude’ of any price falls or increases. Diary Data/event BST Consensus* EU Ind prod (Oct) m/m 10.00 -0.4% SE Riksbank’s Nyberg speaks 11.00 CA Net portfolio balance (Oct) 13.30 -C$0.1bn last CA Wholesale sales (Oct) m/m 13.30 0.5% US NAHB housing index (Dec) 18.00 61 GB RICS house prices (Nov) 00.30 -5% Latest data Actual Consensus* DE PPI (Nov) y/y 5.0% 4.9% FR Current account (Oct) -?3.4bn -?2.7bn * Consensus unless stated |