Currency Positioning and Technical Outlook: Underlying Trend Intact
January 5, 2013 - 8:02am
One of the most important decisions participants in the foreign exchange must make is whether to view the dramatic pullback in most of the major foreign currencies seen in the early days of the new year as a reversal of the trend or as simply an overdue correction. Our technical analysis sides with the latter and we anticipate renewed dollar weakness in the period ahead. We would be forced to reconsider if the euro fell through the $1.2980 area or if sterling fell below $1.60. Although the dollar's sharp gains against the yen have left it over-extended, we see no compelling technical sign that a reversal is at hand. Just like ECB's Draghi wielding Outright Market Transaction scheme drove down Spanish and Italian yields, Japan's Abe's rhetoric has been sufficient to drive the yen down without lifting a finger or spending cent. Reports indicate the new Japan...
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