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Market Drivers Jan. 14, 2013
Evans spurs early rally in EURUSD as 3400 taken out
EURCHF as highest since 2011
Oil $93.78/bbl
Gold $1669/oz.

Europe and Asia:
AUD Home Loans -0.5% vs. 0.5%
AUD Job adverts -3.8% vs. -2.8%
NZD NZ Card Spending 0.4% vs. 0.7%
EUR Eurozone Industrial Production -0.3% vs. 0.2%

North America:
CAD BoC Senior Loan Officer Survey 10:30
CAD Business Outlook Future Sales 10:30

Euro bolted out of the gate on the first trading day of the week to hit fresh year to date highs of 1.3400 in early Asian session before correcting a bit in morning European trade. The pair was fueled higher by combination of EUR/JPY buying and a speech by Chicago Fed President Charles Evans in Hong Kong which reiterated the Fed’s commitment to monetary easing.

Mr. Evans – perhaps one of the most dovish FOMC members – stated that he does not expect the Fed to curtail the QE program until 2015 when the US economy will begin to consistently generate 200,000 plus jobs per month. Mr. Evans expected the unemployment rate to continue to decline dropping below the 7% mark by the end of this year.

Mr. Evan’s speech was viewed a precursor to Chairman Bernanake’s remarks due later this week that should reaffirm the Fed’s commitment to accommodative policy amidst recent speculation that US central bank may begin to tighten given the improvement in the US economy.

Meanwhile in Japan the markets were closed for a holiday, but that did not prevent USD/JPY from making fresh year to date highs as the pair soared to 89.68 at the open of Asian trade. Reports over the weekend that the BOJ would agree to a Mr. Abe’s 2% inflation target spurred a buying frenzy in the pair before trading cooled a bit into European session.

Given Mr. Abe’s relentless pressure on the Japanese monetary authorities, USD/JPY continues to rally unabated and with the pair now within striking distance of the key 90.00 level, speculative longs may try to push it though the figure as the week proceeds.

However, perhaps the biggest surprise of the night was the breakout move in EUR/CHF which rose to 1.2270 – its highest level in more than a year. The pair has been gaining strength over the past several days as it took out the 1.2200 handle in Friday’s trade. The sudden surge in the pair has been driven by growing investor confidence in the EZ financial situation.

Although the economic data from the region remains dreadful, as evidenced by today’s weak IP report (-0.3% vs. 0.2% eyed), investors are growing increasingly more confident in the financial stability of the European monetary union. With periphery sovereign debt yields in both Italy and Spain declining markedly over the past several months the risk of fracture has been reduced significantly. Therefore the “euro breakup” trade is being unwound with EUR/CHF one of the key beneficiaries of that trend as the pair now sees organic buying interest rather than simply prop up support from the SNB. The breakout rally now opens the path to late 2011 highs near the 1.2400 level.

With no major economic data on the docket in North American Trade currency trading will likely be dominated by technical levels. Having breached the 1.3400 in EURUSD and 120.00 in EURJPY traders will now want to see if North America will make another run at those figures while EURCHF may try to test 1.2300 as the day proceeds.

Boris Schlossberg
Managing Director

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