Currency markets – A bagful of mixed sweets this week.

EUR/USD (1,2810): Heavy stuff weights on Euro. Some Euro Zone countries fundamentals deteriorate pretty fast now. It apparently leads to speculation among Far East market participants about an ECB rate cut in mid February, though that would be against the guidance from Mr. Trichet, so I doubt that one.

Equities has changed the sentiment again which already sent EUR/JPY somewhat lower, taking EUR/USD down as well. This pressure will continue during the week.

Last week I thought 1,3450 would be the top but it turned out to be 1,3350. This week it feels that the top and range will be even lower trading at 1,2650 – 1,3250. Long term the Greenback will come under renewed pressure due to an oversupply of US debt and Dollars, but that’s another story.

I see the US labour market data on Friday (exp.-500 / 7,5%) as the true heavyweight numbers this week. Until then, especially the stock markets once more will dominate EUR/USD and EUR/JPY.

Target: Range 1,2650 – 1,3250.

  
EUR/GBP (0,9035) – GBP/USD (1,4180): Sterling I got totally wrong as GBP went much stronger by end of last week.

Some global UK based corporations was bought pretty well plus the financial stock rally also supported the capital flow into UK.

Furthermore caused some serious model adjustments buy back of GBP. I expect both factors to reverse into sterling selling again.

Some UK PMI numbers will be released during the week but the true number to watch is the Dec. industrial production on Friday (exp. -7,9% y/y). The expectations are very low, but they could come out even worse…

The Bank of England rate cut down to 1,00% on Thursday is priced in the market.

I argue that EUR/GBP will jump back up in the 0,9300 – 0,9700 range, where GBP/USD will trade in the low end of the 1,3750 – 1,4250 range.

Targets: EUR/GBP range 0,9300 – 0,9700 followed by 1,0000     GBP/USD range 1,3750 – 1,4250 .

EUR/JPY (115,25) – USD/JPY (89,90): ok, it’s all about equities as we have seen so many times before.

The fundamental data from Japan is incredibly weak, with rumours of a double digit negative GDP growth in Q4. It would of course have sent any currency lower if it hasn’t been for the equity linked flows.

It’s hard to say anything else. On Friday, the leading economic index for Dec is worth to keep an eye on (exp. 79,0) but not a true market mover.

It’s too early to consider a long term short bet in JPY as the above factors still are working in the other direction.

EUR/JPY is now trading in the very low end of last weeks expected range, so with the above outlook I will lower the range from 115,00 – 121,00 to 112,00 – 118,00. USD/JPY I leave unchanged.

Targets: EUR/JPY range 112,00 – 118,00  USD/JPY 88,00. Expect intervention.

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