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Daily Report: Euro Recovers in Quiet New Year's Eve TradingThe forex markets are pretty steady in the last day of 2010. Euro got a lift on short covering in crosses as well as by comments from German Chancellor Merkel. Merkel said in an advance text of new year speech to the nation that Euro is far more than just a "currency", but the "foundation" of German economy. She urged that "we must strengthen the euro" as "Europe is in the midst of a great test." The common currency is seen noticeably higher against Swiss Franc and Australian dollar. Short covering in these two deeply oversold crosses helped lift Euro higher against dollar and yen and extended EUR/GBP's rebound. |
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| Featured Technical Report | |
EUR/JPY Daily OutlookDaily Pivots: (S1) 107.65; (P) 108.28; (R1) 108.97; More EUR/JPY's recovery from 107.60 extends further and the developments suggests that a short term bottom is in place with bullish convergence condition in 4 hours MACD. Intraday bias is turned neutral and stronger recovery could be seen to 109.50 resistance and above. But after all, near term outlook will remain bearish as long as 112.18 resistance holds. Whole decline from 115.65 is still in favor to continue and below 107.60 will target a retest on 105.42 low. |
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| 2011 Currency and Monetary Policy Outlook |
Uneven Growth Story Prolongs EZ's Hard Time while Money-Printing Nature in SMP will Send Euro LowerThe sovereign crisis in the European periphery that triggered panic selling of the euro in 2010 will have further to run in 2011. Bailouts for Greece in May and Ireland in November failed to stem contagion to other countries. The market has speculated Portugal and Spain will the next to seek EU/IMF assistances. While EU financial leaders agreed to create a permanent debt-crisis mechanism in 2013, they failed to compromise on details of the plan and immediate steps to calm the market. Uneven growth prospects in core and peripheral European economies should remain a key issue in 2011.The widening divide of economic performance between Germany and peripheral countries would make ECB's policy outlook more challenging. While we do not foresee a breakup of the 16-nation region, it would be a tough year in 2011. US - A Shift from Monetary to Fiscal StimulusThemes dominated the global FX markets this year will remain in focus in 2011. For much of the time, US economic recovery and Fed's addition of QE were affecting USD's movement. QE2 will expire in June 2011 and therefore the market will find no clues on what's next in coming few months. In our opinion, extension of Bush-era rate cuts would boost US economic growth in coming 2 years. Together with signs of recovery over the past few months, the Fed will not need to extend unconventional measures as QE2 expires. Yet, the Fed will still keep the policy rate unchanged at 0-0.25% and maintain a dovish tone throughout the year. Stronger economic growth and an end to QE should be supportive for US dollar. In the Eurozone, sovereign crisis in peripheral economies may have further to run. We expect the euro will decline against the dollar in 1H11 before recovery seen thereafter. Break-up of the 16-nation region has been a hot topic this year. Indeed, we believe such worry is overdone. However, member countries will have a tough year in 2011. |
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Merry Christmas and Happy New Year, next Ichimoku & Candlestick Trade Idea, and Elliott Wave Trade Ideas update will resume on 3 Jan 2011. Candlesticks Intraday Trade Ideas Update Schedule (GMT): Elliott Wave Daily Trade Ideas Update Schedule (GMT): | |||||||||||||||||||||
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