Feb 6, 2017 - Market Update

Short recap

After FOMC and NFPs – markets should be focusing on steps with longer term impact like Fed hiking, roll-back of Dodd-Frank regulation, intrustructure, Obamacare and tax reform than short-term vows over immigration ban

EURUSD – 1.0800/50 still in place and the same goes for DXY at 99.00/50

From technical perspective unless both levels are broken, market is looking at USD from positive side (technically) despite still broad negative outlook

Further resistance around 1.0821/75 area with 200 DMA (may be eventually tested)

USDJPY – below important 112.00/50

AUDUSD – 0.7830 is critical

The bullish USD view to be reviewed if all of the above mentioned levels are broken.

EURUSD – may be verbally supported by the criticism for example from Schauble, who is not happy with weak EUR as it is negative for productivity even though Germany enjoys huge surpluses. His verbal comments are not to last long as he also knows that monetary policy is set for the whole EZ and not just Germany.

This fact, especially in the light of situation in Italy, may not be fully priced in by the market as the still rising divergence in inflation and economic growth among EZ countries is not either. Just by looking at widening of peripheral spreads warrants that ECB will not change its policy anytime soon. There is also another risk coming from regulation of sovereign bond holdings limits for the banks, what may in turn trigger the sell off in Italian bonds. If that happens, the ECB would need to step in. One shouldn’t be surprised if EURUSD rate depends on BTP-Bund spread and moves in tandem. Actually, that would be more accurate valuation metric along with political risks in EZ that trading EUR based on German economy.

Williams (Fed) was out after NFPs on Friday confirming that March meeting is a live meeting, thus opening the door for markets to learn more from Fischer as well as Yellen’s testimony on Wednesday next week.

Good luck Champs!

Mr Hawk

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