Mid-Day Report: Egypt Drives Risk Aversion, CAD Rises on Trade Surplus

By: Milla Shaw in Forex Consultant on Feb. 9, 2011

Development in Egypt remains a major theme of the market and continues to drive risk aversion. After President Mubarak defied calls for immediate resignation and insisted to stay, anti-goverment Egyptians pledged to run their biggest demonstrations. US President Obama urged the Egyptian government “to move swiftly to explain the changes that have been made, and to spell out in clear and unambiguous language the step by step process that will lead to democracy and the representative government that the Egyptian people seek.” Global equities are mildly lower as investors lighten their position ahead of the weekend. Meanwhile, dollar is generally firm against other major currencies.

Canadian dollar jumps in early US session after data showed the country returned to trade surplus in December, after nine months of deficit. The CAD 3.0b surplus was the highest number since October 2008. Export rose sharply by 9.7% with energy products accounting for more than half of the growth. Import on the other hand, was up mildly by 0.7%.

US trade deficit widened by 5.9% to -$40.6b in December, inline with expectation. Import rose 2.6% to $203.5b, highest since OCtober 2008 with value of crude oil jumped from $19.8b to $22.5b. Exports rose 1.8% to $163b, highest level since July 2008, as led by autos, chemicals and industrial machines. Meanwhile, also note that trade deficit with China narrowed from $25.6b to $20.7b.

Other data released today saw German CPI finalized at 2.0% yoy in January. UK PPI input rose 1.7% mom 13.4% in January with PPI output up 1.0% mom, 4.8% yoy and output core up 3.2% yoy.

Australian dollar is knocked down further by RBA Stevens’ comments that hinted that the bank will be on hold at least until second half of the year. Stevens said the bank is “ahead of the game” on interest rates and it is reasonable to assume policy won’t change for some time. Regarding market pricing of no change in rates in first half, Stevens said “that’s not a guarantee that this happens, but I’m fairly content with where we are.”

Daily Pivots: (S1) 0.9607; (P) 0.9655; (R1) 0.9736; More.

USD/CHF rises further to as high as 0.9748 so far in early US session. Intraday bias remains on the upside for 0.9782 resistance first. Break there will confirm resumption of rebound from 0.9300 and should target 1.0065 key resistance next. on the downside, below 0.9678 minor support will turn intraday bias neutral and bring consolidations. But downside should be contained by 0.9523 support and bring another rise.

In the bigger picture, questions remain on whether USD/CHF has made a medium term bottom at 0.9300 after hitting 100% projection of 1.2296 to 0.9916 from 1.1729. Bullish convergence condition in 4 daily MACD does suggest so but the failure to sustain above 55 days EMA argues otherwise. Focus will be on 0.9782 resistance. Break there will now strongly suggest that 0.9300 is a medium term bottom and strong rally should be seen through 1.0065 resistance. However, break of 0.9329 will dampen the bullish case and bring down trend resume towards 61.8% projection of 1.8305 to 1.1288 from 1.3283 at 0.8946, which is close to 0.9 psychological level.

GMT Ccy Events Actual Consensus Previous Revised

07:00 EUR German CPI M/M Jan F -0.40% -0.50% -0.50% 07:00 EUR German CPI Y/Y Jan F 2.0% 1.90% 1.90% 09:30 GBP PPI Input M/M Jan 1.70% 1.40% 3.40% 3.90% 09:30 GBP PPI Input Y/Y Jan 13.40% 12.70% 12.50% 12.90% 09:30 GBP PPI Output M/M Jan 1.00% 0.50% 0.50% 0.40% 09:30 GBP PPI Output Y/Y Jan 4.80% 4.40% 4.20% 4.10% 09:30 GBP PPI Output Core Y/Y Jan 3.20% 3.00% 2.90% 2.60% 13:30 CAD International Merchandise Trade (CAD) Dec 3.0B -0.3B -0.1B 13:30 USD Trade Balance Dec -40.6B -$40.0B -$38.3B 14:55 USD U. of Michigan Confidence Feb P 75 74.2

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