Key News
* BOJ Keeps Rate at 0.1% as It Assesses Lending Program (Bloomberg)
* Banks to be hit by harsh new global rules on capital (Telegraph)
* Cracks in EU Governance Let Debt Problems Slip By (WSJ)
*Fed’s Fisher: Sees ‘Limited’ Chance Of Faster Than Expected Rebound (WSJ)
The Event Agenda
Afternoon Run-Down
More uncertainty surrounding Greece and other Eurozone countries (Portugal, Ireland, Italy, Spain) are elevating the risk environment. That and a burgeoning shift in market focus toward some relative growth and interest rate advantage prospects for the U.S. have underpinned fuel for the dollar on the risk taking front and on the risk aversion front.
The Fed statement on Wednesday added more fuel. And I think it’s still being overlooked when people are looking for reasons for why the dollar is continuing higher.
The Fed recognized the signs of improvements in the employment situation and some signs of life in the consumer. That’s a positive comment on the economy and that bolsters this idea that maybe the Fed can move on rates little sooner— dollar positive.
But another big area in the Fed statement: Here is the excerpt….
“The Federal Reserve will also be working with its central bank counterparties to close its temporary liquidity swap arrangements by February 1.”
By closing currency swap lines with foreign central banks, the Fed is essentially withdrawing dollar liquidity (dollar supply) from the world. That’s dollar positive. And after the dollar chopped around following the statement in the NY session on Wednesday, the markets overnight took the message and bought dollars aggressively sending it sharply higher.
Here’s a look at the charts we looked at last week going into the weekend. The continuation of dollar strength is supporting the recent technical developments I noted last week.
Key Charts
Dollar Index
The dollar has clearly broken out of this nine month downtrend. The 61.8% retracement of the March highs to the November lows comes in at 83.72 on the index…another 8% higher.
Euro
The euro extended its fall following the Fed statement. It’s now approaching the 200-day moving average (1.4181) which should provide some short term support. But considering the thin holiday markets this move could get slippery. The 61.8% retracement of the nine month uptrend comes in at 1.3484.
Gold
The accelerating trend over the past year in gold is testing trendline support. With a bearish outside month in play, the $1000 level looks like it will be tested where there is a confluence of support….1) the psychological 1000 level which proved difficult to break on the way up (resistance becomes support), 2) trendline resistance of the nine month trend, and 3)the 200-day moving average is converging.
USD/ Yen
A corrective ABC Elliott Wave structure projects a move above 94 for dollar/yen.
