Markets were little changed during the Asian session with no major headlines to guide traders and this was combined with a relatively directionless meeting statement from the latest G10 Summit. Japanese markets were open for the first time since the holidays but trading volumes were still thin and the result was a lackluster market session.
The most important release came during the US session, as the FOMC minutes from the last monetary policy meeting in December showed that there is some disagreement with the current bias toward leaving the base rate level unchanged until the middle of 2013. Three voting members opposed the policy stance when it was first drafted so most of the market is focused on the Federal Reserve plans to change its communication strategies, which currently take the form of press conferences on a quarterly basis. Analysts are now looking forward to the January meeting for the next indication of where interest rates will be headed in the US.
For the most part, macro data out of the US has surpassed market expectations and the latest example of this was the manufacturing ISM report coming in at 53.9, which is firmly in expansionary territory and this was aided by a strong construction spending report released at the same time. The EUR/USD has moved a leg higher, currently trading back above the psychological 1.30 level while the USD/JPY is trading heavy at 76.70.
In the Eurozone, new EFSF plans are being drafted to make 3-year Euro bonds available to markets. The goal of these bond offerings is to provide funding for Ireland and Portugal. The EFSF is currently rated AAA but this could change if we see downgrades in the long term credit rating in France. Macro data was seen with the German unemployment figures, which were positive and showed a drop of 22,000 claims (a drop of 10,000 was expected). The unemployment rate was also seen lower at 6.8 percent, so the data is helping support the latest upward moves in the Euro against the rest of the majors.
In Switzerland, the December PMI reading was probably the biggest macro surprise of the day, coming in at 50.7 against expectations of 45.6. The stronger data adds validity to the SNB’s argument that a price floor in the CHF, so there is little to suggest that this level (1.20 in the EUR/CHF) will be changed in the near term.
The EUR/USD is making a nice rebound on the hourly charts but when we pull out to the dailies we can see that resistance at 1.3220 needs to be broken before the move can start to look more convincing. The key level to the downside is at 1.2870, a break here will accelerate losses and put 1.2750 into focus. The MACD reading is firmly in negative territory and the downside cross in the 100 and 200 period moving averages suggest that any further upside moves will be limited.
The DAX has broken its daily symmetrical triangle to the upside and this is a very bullish sign for the longer term prospects in the index. Shorter term, prices are likely to have some difficulty with historical levels at 6175, which is also there the 200 period EMA comes into play. A break of 6175 targets 6450.