Thursday, November 29, 2012

FXPRIMUS : Daily Market Report for 29 November 2012: What’s Next After Fiscal Cliff?

Economic Insights

Euro Zone Crisis – more complicated game in 2013

If we assume the European Stability Mechanism (ESM) can help the Euro Zone debt issues regarding outstanding payment difficulty, we still can’t ignore the next step – the financial system restructuring stage. The possibility of sovereign debt restructuring will likely continue unnerving investors in early or the middle of 2013, and the progression still hangs.

The external financing needs of many peripheral countries were gradually limited in the past two years, and Spain is a great example. Spain’s current account deficit narrowed to 2.9 percent of Gross Domestic Product (GDP) by the end of the second quarter from 10.6% of GDP in the second quarter of 2008. Portugal declined to 3.7% of GDP by the middle of this year from 12.6% of GDP at the end of 2008. The reduced need for external financing appears to cause slightly declined Target2 balances.Source: Bloomberg, FXPRIMUSClick the image to enlarge

The legacy of balance-of-payments crisis is a large government debt overhang. For example, the International Monetary Fund (IMF) forecasts that Spain’s debt-to-GDP ratio will increase to 90.7 percent by the end of this year.

The days of widening intra-European sovereign yield spreads may still be far from over, despite the previous stage of the crisis appearing to end. The bottom line is rocket-high unemployment that continues trimming the confidence across the board.

Japanese retail sales take another hit

With fewer cars exporting to China, the Japanese domestic market also took another hit as the economy waned from domestic consumers purchasing fewer cars and televisions.Source: BloombergClick the image to enlarge

The deteriorating economy further pressured the Japanese government to bolster activities; the government just mentioned that it would launch the second round stimulus, about a JPY1 trillion injection, following a JPY750 billion last month.

However according to our pricing model, the current price of the USDJPY above 82 priced in an 85.3% chance of the future stimulus. Plus shaky western conditions could send the safe haven JPY another lift.

Currency Insights

EURUSD – resistance near 1.2980 remains unchanged

As I mentioned yesterday, with the single currency facing headwind, Europe lacks catalysts to lower tail risk in the near term. After difficult negotiations in the Euro Zone finance ministers’ meeting, many problems remain. The chance for selling off instead of rallying for the next wave is slightly higher.

In the technical point of view, I remain unchanged with the view of the resistance at 1.2980. The 1st support is at 1.2890, and 2nd support at 1.2850.Source: BloombergClick the image to enlarge

Disclaimer The analysis we provide is based on the average estimate of price movements in one day. Does not guarantee what we deliver is actually a proper and correct. Everything that happens in the decisions you make on your trading transaction is to be Your responsibilities. Visit Us


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