20140127

Good morning,

Last week, markets sold off significantly on back of fears that the current upswing is more fragile than before anticipated. In addition, the markets are concerned of the outcome of the Fed meeting this week, which could trigger an additional sell-off. The Dow Jones had its worst week since 2011 and Asian shares are heading for the worst monthly performance in seven months even though the BoJ are keen on reaching their inflation target by adding further stimuli into the Japanese economy. In the US, main indices were all in red (following a weak EU session with Euro STOXX down 2.85%) with all three major indices down in the area of 2%.

In FX markets, last week was very volatile, and we expect the coming week to be just as interesting. USD/CAD took home it's third weekly gain in a row on back of a more dovish than anticipated BoC. Although they left interest rates unchanged at 1% as expected, the central bank signaled that there are downside risks to inflation. On Friday, the CPI came out as expected, which sent the pair on the offer as a result of profit taking and a "buy rumor, sell fact" behaviour. That in mind, the markets are still positioned for additional upside with near resistance a 1.1160 (highs from week beginning July 19th 2009).

EUR/USD had a poor start, but a solid finish to last week after testing the 61.8% Fibo retracement in the Nov-Dec 2013 wave and trend support from September 2013. On Thursday, the pair closed above the 50- and 100-day SMAs and is currently testing the 1.37-figure with next resistance at 1.3740.

Today, German January IFO figures will be interesting at 09:00GMT. Expectations are for all three indices that we will see an increase compared to December on back of decent PMIs. From the US, the December New Home Sales will be in focus at 15:00GMT with expectations for a slight drop to 457k vs. 464k in November. Although today's numbers are significant, we expect market action to be limited ahead of the Fed on Wednesday.

Have a nice day!