The USD is attempting to follow-through to last week’s sharp rally amid the broad deleveraging process. While today’s action is a bit tempered relative to last week’s trade, the overall setup for additional USD strength remains intact given the potential for further risk-unwind. Again, this follows the one-way breakout through a number of important levels last week particularly for EUR/USD, GBP/USD and the Dollar Index. Importantly, last week’s breakout through the critical 1.3830/1.3720 support in EUR/USD and 79.50/80.10 resistance zone for the Dollar Index are consistent with a continuation of the current trends. Note that EUR/USD now sees important support in the 1.35/1.34 area, which includes the 61.8% retracement from the March ’09 low. Moreover, Cable is testing the key channel support from the August high at 1.5533. However, beyond a near term consolidation, there is little evidence of a sustained reversal.
We note that both AUD/USD and NZD/USD see an important test this week given the proximity of the 200-day moving averages. As such, we have been hesitant to sell here but will look for near term corrective bounces to establish short positions particularly against last week’s breakdown levels.
For USD/JPY, the near term bounce continues to develop following the test and hold of the key 88.55/25 support area, which includes the daily cloud support. We see a more compelling story for the crosses though with a number of important medium term support levels in play. The highlight of this is the 76.30/40 medium term range lows for AUD/JPY, as breaks here would confirm an extended decline is in the works. Moreover, GBP/JPY is hovering around the Q4 range lows near 139.30, while CAD/JPY continues to hold the Jan ’09 uptrendline at 82.52.
For the Latams, we see several important tests as well. As CLP maintains an overall negative bias, we note USD/CLP is pulling back from important resistance in the 555/563 zone while suggesting some short term consolidation. Similarly, USD/BRL is quickly approaching the critical 1.90/1.92 area.
Trade Strategies:
Short 1 unit EUR/USD from 1.3687 risking 1.3875 targeting 1.3100
Short 1 unit GBP/USD from 1.5680 risking 1.5870 targeting 1.5275
Short 1 unit EUR/MXN from 19.3369 risking 19.00 targeting 16.70/15.50.
Short 1 unit NZD/NOK from 4.1558 risking 4.2920 targeting 3.70.
Feb. 5 (Bloomberg) -- Mexico’s peso will probably strengthen this year as foreign investors increase their presence and the economy rebounds from the recession, Deputy Finance Minister Alejandro Werner said.
Volatility in global markets that has caused the peso to weaken in recent days has postponed the currency’s recovery, Werner said. The peso fell the most in almost two months yesterday after a report showed more Americans filed first-time claims for unemployment insurance last week.
“As the Mexican economy shows a better growth path, it’s probable that there will be an important arrival of capital and a strengthening of the currency,” Werner said in an interview at Bloomberg’s office in London. “With these movements in the markets in recent days, this will be postponed.”
The currency gained 4.4 percent last year, the seventh- worst performance against the dollar among the 16 most-traded currencies, ending 2009 at 13.0914 per U.S. dollar.
Mexico’s $1.09 trillion economy posted the biggest slump in Latin America last year, shrinking 10.1 percent in the second quarter and 6.2 percent in the third quarter. It probably shrank around 7 percent in 2009, the most since 1932, according to the central bank.
Mexico’s gross domestic product may rise more in 2010 than the government’s forecast of 3 percent, Werner said.
The central bank forecasts that the economy may expand as much as 4.2 percent. JPMorgan Chase & Co. yesterday raised its 2010 economic growth forecast for Mexico to 4.5 percent from 3.5 percent, citing a recovery in manufacturing and improving domestic demand.
The peso declined this week on U.S. jobs data and concern that Spain, Portugal and Greece will struggle to finance their budget deficits, eroding demand for higher-yielding, emerging- market currencies.
Initial jobless applications in the U.S. increased to 480,000 in the week ended Jan. 30, the most in seven weeks, from 472,000 the prior week, Labor Department figures showed.
The currency slid 1.6 percent yesterday to 13.1659 per U.S. dollar, from 12.9500 on Feb. 3. It was the biggest one-day drop since Dec. 8.
In trading today, the peso weakened 0.2 percent to 13.1885 at 11:39 a.m. New York time. For the year, the peso has lost 0.8 percent, the fourth-best performance against the dollar among the 16 most-traded currencies.
Daily Settlements for MXN/USD Futures (FINAL)Trade Date: 02/05/2010
