Data Affirmed Fed's Delay In Tapering, European Majors Gained

The lackluster non-farm payroll report released last week affirmed the view that Fed will not taper the asset purchase this year. But rather, economists are now expecting Fed to start scaling back the $85 per month bond buying in March. Such expectation boosted US equities and send S&P 500 to close at another record high of 1759.77 while DOW also closed the week up at 15570.28. Treasury yields tumbled again with 10 year yield closing at 2.503%, comparing to last week's close of 2.589%. Dollar index also extended recent decline and breached 79 level before closing at 79.21.

However, there are a few points to note. Strong risk appetite was also seen in Europe with DAX making a record close at 8985.74 after breaching 9000, comparing to last week's 8865.10. FTSE also strengthened to close at 6721.34 comparing to last week's 6464.44 even though it's staying below record close at 6840.27. However, risk sentiments were different in Asia. Nikkei closed at 14088.19, down 473 pts from prior week's 14561.54. Hong Kong HSI closed at 22698.34, down 641.8 pts from prior week's 23340.10. Shanghai composite closed at 2132.96, down from prior week's 2193.78. Worries over tightening from China to curb lending and guard against inflation pressured Asian markets. And such sentiments sent Aussie and Kiwi lower while pushed yen higher.

Overall in the forex markets, The euro and swiss franc were the strongest currencies last week. Sterling lagged behind due to cross selling in the EUR/GBP and was even weaker than yen. Commodity currencies were broadly lower with Aussie and Kiwi weakened for the reason mentioned above. Canadian dollar was not better as BoC surprised the markets by dropping the tightening bias in last week's post meeting statement.

Technically, while European majors were strong, it should be noted that EUR/USD hit a projection level at around 1.38 and could now be turning into consolidation. There was also some buying seen in the USD/CHF below 0.89 level, which is close to a long term fibonacci level. EUR/JPY and GBP/JPY were both showing sign of loss of momentum even though EUR/JPY did make another high. We'd tend not to go long in European majors this week, but then, as the reversal is not being confirmed, we're far from shorting them. So, we'll avoid European majors.

The AUD/USD's rally might have topped in near term after hitting a medium term fibonacci resistance. Also, rebound in EUR/AUD is giving some pressure to the Aussie too. But, the retreat from 0.9759 in the AUD/USD and AUD/JPY, and the recovery in EUR/AUD are so far corrective looking. Thus, we'd tend to avoid the Aussie too.

Instead, the clearer opportunity should be found in Canadian dollar, whose weakness would likely continue. And as we'd expect Europeans and Aussie to consolidate, we'd prefer to short Canadian dollar against dollar and yen this week.

To recap out strategy from last week, the EUR/CAD short was totally wrong and was stopped out. The AUD/JPY long was correct in the first half of the week but suffered as the cross retreated sharply. We have closed out this long position first. For this week, we'll go long in USD/CAD for 1.05 level and short CAD/JPY for at least a test on 92.21 support.