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Daily Observations: December 6, 2012

Christopher Vecchio

Current Positions:

- Long EURCHF from 1.2018, Stop at 1.1990, Target 1 at 1.2500, Target 2 at 1.2750

- Short EURUSD (1/2) from 1.3110, Stop at 1.3055, Target 2 at 1.2990

- Long USDJPY from 80.65 (1/2), Stop at 80.75 (daily close), Target 2 at 83.30

Recently Closed Positions:

- Closed Short EURUSD (1/2) from 1.3110 at 1.3030 for +80-pips.

Time Frame: 1-day to 1-week

The ECB disappointed investors today on two fronts: on one hand, no progress was made towards getting the OMTs active to help Spain; and the reduction in key economic forecasts opens the possibility that policies will be adjusted to push interest rates lower. The Euro looks fundamentally weak at present time, and with the EURUSD falling off of its ascending trendline on the November 21 and November 28 lows, it's possible for a deeper retracement towards 1.2880/1.2900. Likewise, I'm watching 86.20 in AUDJPY, which would at least suggest the uptrend since Tuesday has been stunted in the near-term; 85.00/25 should provide support.

The impact of the November US labor market report is very much up in the air, given the low expectations for the print due to Hurricane Sandy. Weekly claims figures were negatively impact for at least three or four weeks, but the rebound has been quicker than anticpated; if NFPs are to take a similar path, it's possible that we see a small beat around +100K (current forecasts call for +86K). But given these exogenous factors influencing the headline figure, it won't provide much clarity, and will likely be disregarded.

Keep in mind that the Federal Reserve meets on December 12, where it is widely anticipated a QE3-Extension or QE4 program will be announced to take the place of the expiring Operation Twist, the maturities extension program (MEP) in place since June 2011, which expanded the Fed's balance sheet at a pace of $45 billion per month (selling short-term securities for those with longer durations). This discussion will take place irrespective of the November NFPs, reducing their signficance even further (on a side note, I am personally rooting for a print of +95K or greater to spur some slight risk-aversion headed into early next week; I think it would be a good opportunity to sell US Dollar strength ahead of the December 12 FOMC meeting.

Any other trade ideas and general macroeconomic musings can be found in the Real Time Newsfeed, or by following me on twitter @CVecchioFX.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

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