EUR continued to fall on the lack of positive triggers on the debt crisis front, and only positive new drivers would reverse this next week. GBP also fell, partly on negative data, and is expected to fall further on the incoming data, barring surprises. JPY yielded, though only slightly. Better-than-expected US data might help it to maintain this trend..…
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EUR – EUR fell this week too, slipping from 1.36 to 1.32 EUR/USD. As we had foreshadowed, the currency was weakened by the lack of positive, concrete developments on the crisis front. Although, for example, Monti won plaudits from Merkel and Sarkozy over the fiscal consolidation programme for Italy, the same summit meeting showed deep differences over how to resolve the crisis. EUR may continue to fall next week in the absence of substantial and constructive triggers. The technical target for this year’s downwave lies at 1.30-1.28 EUR/USD. 1.3126 remains the key support before 1.3000. By contrast, EUR would rebound on positive developments, upside target 1.3558-1.3664.
GBP – GBP also depreciated, in tandem with EUR, falling from 1.58 to 1.54 GBP/USD, and thus reaching our downside target. The all was “encouraged” in part by the dovish message contained in the BoE minutes – as expected– and by the dire breakdown of 3Q11 GDP, showing once again that the growth came almost entirely from inventories and that foreign trade again made a negative contribution. Due out next week are consumer credit and PMI manufacturing for December. Overall, our expectations are slightly more negative than the consensus. In this case GBP should fall further, temporarily dipping a short way below the downside target vs. USD.
JPY – JPY yielded slightly this week, easing from 76 to 77 USD/JPY. If next week the US data prove even better than expected, JPY might fall further, moving into the area 78 USD/JPY. The Japanese authorities have recently voiced growing concern over the domestic economy: (1) Standard & Poor’s has indicated that the public finances are deteriorating day after day, thus increasing the risk of a downgrade; (2) the IMF reports that there is the risk of a “sudden spike in yields”, the effect of which would make the level of debt unsustainable; (3) Shirakawa said that the high level of risk aversion caused by the Euro area crisis may harm the Japanese economy via the excessive strength of JPY.
Appendix
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