This text is from blog famous currency strategist Joel Kruger .
MONDAY, OCTOBER 29, 2012 – VOLATILITY EXPECTED TO PICK UP – The week ahead could very well be an interesting one, with global sentiment starting to wane and market participants possibly positioning for some risk off trade into November. While most currencies only pulled back marginally against the buck in the previous week, the FX price action in conjunction with notable selling in US equities was certainly suggestive of some form of a shift in risk appetite. Looking ahead, there are a number of themes over the coming days that could very well fuel additional uncertainty.
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US ELECTION ONE WEEK AWAY – The US election is now only one week away and investors might start to get a little nervous as the political risk intensifies. The presence of Hurricane Sandy has only added to tensions, with market function being affected on news of NYSE and NYMEX closures. Meanwhile, there has still been no clear resolution on Spain and Greece, and ECB Draghi has been out talking tough on the central bank’s bond buying scheme. The central banker’s comments are well worth mention and could really be a much bigger deal than many might think.
DRAGHI NOT HELPING EURO’S CAUSE – Draghi said that purchases of bonds would come under strict conditions and that “unlimited” bond buying did not mean “uncontrolled” bond buying. Furthermore, and perhaps even more revealing, were the comments from Draghi that there would be no intervention unless bond spreads were “excessive,” and that the new bond buying program would not be used to eliminate differences in EZ rates due to the fact that high borrowing costs represented incentive for governments to pursue economic reforms. This language comes as a bit of a shock, with the hardline approach not likely to do anything to help the Euro’s cause.
NOT SO BORING BOJ RATE DECISION – Moving on, we can’t forget about the Tuesday event risk in Japan, with the highly anticipated BOJ policy decision likely to factor into Yen price action. While most of the time, Bank of Japan rate decisions are not worth any attention, the expectation for additional easing this time around could very well inspire a fresh round of Yen selling, with the currency already showing some signs of legitimate weakness in recent days. Throw in an FT article entitled “Japan Grapples with its Fiscal Cliff” and some very discouraging local economic data, and the outlook for the Yen is not looking too bright. Key resistance for USDJPY now comes in at 80.65, and a break above this week would do a good job of opening the door for a more immediate retest of the 2012 highs at 84.20.
