Swissy and Euro Rise Further, Yen Lower on Intervention Talk

Economic data continues to be ignored by the investors as a couple of theme is developing that triggers much volatility in the forex markets. Firstly, the Japanese yen is sharply lower in general as intervention speculation continues. FM Nakagawa said that he's "keenly watching" currency markets and has "the means" to limit the yen's advance. Euro continues to benefit from money flow from dollar and now the yen too and surges across the board, making new record high against Sterling again despite poor from from Eurozone. However, the more important development is believed to be in the sudden strength in the Swissy.

USD/CHF continues its slide to as low as 1.0410 so far and with 1.0623 key support zone taken out, parity should be within reach within a couple of weeks. EUR/CHF extends the fall from 0.5880 to as low as 0.5283 today. As mentioned before, EUR/CHF reversed sharply this week, right after hitting an important fibonacci level of 1.6827 to 1.4315 at 1.5867 and 55 weeks EMA at 1.5848. The development is taken as an alert that EUR/CHF's rebound from 1.4315 might be completed at 1.5880. Further fall is expected as long as 1.5519 resistance holds and break of 1.5163 support will add much credence to this case. Another development to note is the sharp rebound from CHF/JPY from 75.05 low that extends further to as high as 85.47 today. The strong break of 55 days EMA argues that the trend in CHF/JPY has reversed.

While there is no firm answer for the underlying strength in the Swissy, a couple of factors should be considered. Firstly, there is no doubt that world central banks are entering into an era of low interest rates and will remain there for some time. Recent strength in Euro is based on speculation that ECB might pause rate cutting in Jan. But after all, with deepening recession risks in the Eurozone, ECB will likely be forced to follow Fed and BoE and cut rates again some time next year. Hence, the so called unwinding of carry trades will resume eventually. Secondly, based on the above, the trend will favor low yield currencies. However, speculations of intervention from BoJ is probably hold traders back from betting on further gains in the yen and thus shift the focus to another low yielder, the Swissy. Thirdly, funds in other European countries might be flowing into the nearer safe haven currency the CHF.

But after all, the above mentioned 1.5163 level in EUR/CHF will be closely watched as an important indication that Swissy is gradually taking over Euro's role to lead the rally against dollar, sterling, as well as other major currencies.

In Germany, December ifo business climate hit record low at 82.6, compared with consensus of 84 and November's 85.8. Business expectations index also plummeted to 76.8 from 77.6 last month. October retail sales dropped to 2.9% (consensus: 2%) from 6.4% in the previous month. Eurozone also recorded trade surplus of 0.9B euro in October. Though significantly lower than 4.2B euro in October 07, the figure beat market forecast and revised October figure of -4.5B euro.

In the UK, PSNCR in November came in at 10.3B pound (consensus: 11.65B pound; October: -4.91B pound) while retail sales surprisingly climbed 0.3% mom in November, compared with market expectation of -0.6% and -0.1% in the previous month. The rise was brought by 3.95% surge in sales of household goods.

Swiss trade surplus widened to CHF 2.15B in November from 1.95B in the previous month as 13.4% decline in imports outweighed the 10.1% decline in export. Retail sales unexpectedly rose 2.9% yoy in Oct.

Japan's revised November machine orders dropped 62.1% yoy with domestic and foreign order plunging 60.5% and 63.6% respectively.

The US Labor Department will release initial jobless claims for the week ended Dec 13. Consensus of 558K addition indicates a decline from the seasonally-quirked (post-Thanksgiving week in Dec 6) figure in the previous week. November leading indicated is expected to come in at -0.5%, the 4th decline in 5 months, due to plunging building permits and stock market. As economic activities have slowed down very sharply since the second half of 2008, December Philly Fed should have weakened further to -40.5 from -39.3 last month.

In Canada, leading indicators in November should have dropped 0.4% while retail sales is expected to have contracted 1% mom in November after rising 1.1% in October.