Forex Strategy In The Irish Aftermath

Here’s some tips on how to navigate in the foreign exchange market the coming week in the aftermath of the Irish bailout drama. Reports and analysis from Saxo Bank, DnB NOR Markets and others.

“EUR gapped higher as trading kicked off but then hovers in Asia; S&P cuts New Zealand’s outlook to negative.”

Andrew Timothy Robinson


“We started the week off slowly in Asia with only minor data to whet the appetite. The European session is also quiet with Swiss money supply the only release while the US session has the Chicago FED Index and a late euro zone consumer confidence to cope with,” Saxo Bank’s FX spesialist Andrew Robinson writes.

In weekend developments, Ireland bowed to EU pressure and requested a bailout package and its related conditions.

“Initial announcements suggest a bailout to the tune of €80-90 bln with a 4-year plan to reduce the budget deficit by 2015. The final rate is still being negotiated but will certainly be better rate than currently available in the markets,” Robinson at Saxo Bank ponts out.

Adding: “The response from G7 finance ministers was positive, saying “The coordinated action of European countries and the IMF reflects our shared resolve to act swiftly and decisively to mitigate emerging risks, maintain market stability, and safeguard the global recovery”.

The initial reaction saw the EUR open 40-50 ticks higher in Asia from the NY close though other risk pairs failed to catch the wave to the same degree.

Asia struggled to press on with the gains with a Tokyo holiday tomorrow curtailing trading interest.

In addition the US Thanksgiving holiday on Thursday tempered interest.

“The Thanksgiving holiday causes most of the data activity to be bunched into the first half of the week – but not today,” Andrew Robinson writes.

Andrew Robinson

“Midway through the session ratings agency S&P announced it was switching its outlook for New Zealand’s foreign currency rating, and those of 6 related agencies, back to negative. The agency said the outlook revision reflected its recognition of the risks stemming from New Zealand’s projected widening external imbalances in the context of the country’s weakened fiscal flexibility while the vulnerability to external shocks, arising from its open and relatively undiversified economy, also raised risks to the country’s economic recovery and credit quality.”

However, a range of factors ameliorates some of these risks, the agency added, including a high degree of foreign-currency-debt hedging and an actively traded currency.

“New Zealand has independent and effective monetary policy settings with a highly traded and free-floating currency that allows external imbalances to adjust. Despite this, NZD tumbled one big figure versus the dollar and was weaker on most crosses.”

Here’s a copy of Monday’s FX report by Saxo Bank.

Oversold Euro

From today’s Gartman Letter:

“Note then the chart of the EUR vs. the US dollar in hourly terms at the upper left this page. The fact that the EUR made its low last Tuesday at or near 1.3540 and that it has rallied all the way to 1.3750 is impressive, taking the EUR from having been rather egregiously over-sold to the point where it is not modestly overbought. We’ve noted again the 50-62% retracement region… the area we call “The Box” … of the bearish move against the EUR that took the EUR from 1.4250 to 1.3450. The market has some way yet to rally just to get to “The Box” and so we shall not be surprised to see it rally a bit more in the course of the next few days. However, our propensity shall be to sell that strength rather than buying weakness. We’ll wait, however, until the EUR rallies back to The Box before taking such action. We can and we will be patient,”

Here’s a copy of the full analysis.

THE WATCHLIST – UPCOMING SESSION:

  • Swiss M3 Money Supply (0800)
  • Denmark Consumer Confidence (0830)
  • HK CPI (0830)
  • US Chicago Fed Nat. Activity Index (1330)
  • EU Euro-zone Consumer Confidence (1500)
  • US Fed’s Kocherlakota to speak (1830)

(All Times GMT)

See also:

DnB NOR Markets, Weekly Update, Foreign Exchange Market. 11222010.

DnB NOR Markets. Weekly Update. Scandinavian Macro. 11222010.

Saxo Bank. Wake-up Call. 11222010.

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