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EM currencies, EUR under pressure amid solid US jobs

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The week starts with G10 recovering verse USD after Friday’s post-NFP USD rally. The US jobs data has been encouraging with 257’000 new non-farm jobs added through January (vs. 230K exp. & 252K last). The unemployment rate deteriorated from 5.6% to 5.7%, yet with better participation rate of 62.9% (vs. 62.7% a month ago). The average hourly earnings accelerated 2.2% y/y verse 1.9% expected. The USD appetite remains intact as the labor data revived Fed hawks. Yet the US 10-year sovereign yields couldn’t make it above 2%. The metals sold-off aggressively as USD hiked post-NFP release. As XAUUSD pulled out the 200-dma for the first time since EURCHF floor removal, the sell-off accelerated down to $1,228.50. Resistance is eyed at $1,240/50 area (Fib 61.8% on Nov’14-Jan’15 rally / 200-dma).

EUR/USD immediately slid a full figure and extended losses to 1.1287 before the week close. Better bid in Asia, EURUSD has hard time gaining momentum on Greece-related tensions. Freshly elected Greek PM Tsipras says that his country wants to service its debt yet not to extend the bail-out; the austerity is not an obligation. The EUR-sentiment remains solidly negative despite improved surplus in German current account and faster growing German exports in December data. Resistance is eyed at 1.1445/65 and 1.1500 (Fibonacci 38.2% on Dec’14-Feb’15 sell-off / 21-dma and optionality). EURGBP consolidates losses, ranged near year lows (0.74151/481). Daily close below 0.7465 (MACD pivot) should keep the bias downwards and weigh heavier on 0.74 support.

Japanese current account balance retreats from 433 billion to 187.2 billion yen. After breaking above the conversion and baseline post-NFP on Friday, USDJPY tests offers at the Ichimoku cloud top (119.26). With limited improvement in US yields, the USD/JPY’s upside attempts are seen challenging pre-120.00. Option bids abound above 120.00.

AUD/USD gap-opened at 0.7768 (vs. Friday’s close at 0.7796) on significant 19.7% drop in Chinese imports on year to January; exports eased by 3.2% y/y. The MACD will remain in the bearish zone for a daily close below 79 cents and should keep the AUD-appetite limited.

In Canada, the net change in employment (35.4K) failed to revive optimism given that full time jobs decreased 11.8K in January verse an increase in part time jobs of 47.2K. USDCAD first spiked down to 1.2379, to normalize above 1.2500 at week open. The MACD is marginally below the zeroline, suggesting further correction in Loonie is underway should downside pressures ease in oil markets. WTI crude opens the week at $52 yet bids remain fragile as Abu Dhabi announces plans to increase the total production capacity from 3 to 3.5 million barrels/day by 2017.

The EM currencies open the week under selling pressures amid the US released strong jobs data:

USD/TRY advances to fresh record high of 2.4820 as President Erdogan insists on pointing the Central Bank as “accountable” for “wrong” rate decisions. It is just a matter of time before the USDTRY pulls off resistance at 2.50. Stops are eyed above.

Overseas, USDBRL trades at fresh 10-year highs (2.7836 post-NFPs). The Brazilian CPI advances to 7.14% on year to January as expected. The overheating in prices are expected to continue given that the government is now stepping away from price represses. Decent vanilla calls trail above 2.70/75 and should provide support as carry appetite curbs with Fed hawks and higher vols.

Today traders watch: German December Trade Balance Exports & Imports m/m, Swedish December Household Consumption m/m & y/y, Euro-zone February Sentix Investor Confidence and Canadian January Housing Starts.

Luc Luyet, CIIA – Senior Market Analyst:

“With all eyes fixed on the negotiations between Greece and the Troika and with persistent geopolitical tensions in Ukraine, the demand in safe haven is likely elevated. However, the Swiss franc has rather weakened in the last few weeks. The persistent SNB’s FX interventions after 15 January and the strength in the US dollar, weighing on the value of the trade-weighted CHF, have likely been obstacles for further CHF appreciation. However, as it was apparent on 15 January, the size of FX interventions has its limits, so unless the Fed starts hiking rates soon, any prolonged bursts of safe haven demand in 2015 could prove increasingly difficult to counter by the SNB.”

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