Monday, October 12, 2009

12 October 2009

A Tokyo holiday (Sports Day) made for thin market conditions during the Asian session, with the US Federal holiday in the US later (US stock markets will be open) also expected to subdue further 'usual' Monday markets. Early demand for dollar-Asia set the tone for the session with dollar-yen able to reverse early losses to Y89.30, the rate pushing above Y89.70 to trip stops that provided the momentum to lift rate above Y90.00 to Y90.24. The dollar demand also reversed the early euro-dollar rally to $1.4743, the rate dropping back below $1.4700 to $1.4677 before meeting sovereign demand interest that emerged on the dip. Traders noted a wire headline quoting the Thai central bank governor saying the Bank was currently in the process of diversifying dollar portion in foreign reserves. Euro-dollar recovered off lows, moving above $1.4700 into early Europe, aided by demand for euro-yen. For this week focus will be on Wednesday's FOMC Minutes, BOJ policy decision, with the start of US banks Q3 earnings data. Thursday sees US CPI data. In the UK inflation data Tuesday the early highlight.

Euro-dollar opened Asia around $1.4725 and initially edged to mark session highs at $1.4743 in early trade before reversing on short dollar covering (possibly prompted by fund demand for dollar-Asia). Demand for dollar-yen led the move with euro-dollar squeezed below $1.4700 to $1.4677 before meeting reported sovereign demand interest on the dip. Rate recovered back toward $1.4700, moving above in late Asia, extending to $1.4722 before slipping back to $1.4704 in early Europe, currently trading around $1.4710. Resistance seen at $1.4722 through to $1.4727 (76.4% $1.4743/1.4677), a break here to open a move back toward $1.4743 with offers noted from here and extending toward $1.4750. Prop accounts said to have sell interest placed from around $1.4770. Bid interest remains in place between $1.4680/70, a break to open a deeper move toward $1.4650. Further demand noted in place below $1.4630. Tokyo holiday overnight and a Federal holiday in the US (stock markets open) expected to provide for subdued trading conditions.

Dollar-yen rallied strongly in the US session as rising US yields gave the greenback a much needed boost, the pair moving to Y89.90 and closing the day still buoyed around Y89.70, with euro-yen also moved up, closing around Y132.16. A Japanese holiday Monday made for thin trading in the Asian session, dollar-yen slipping to early lows at Y89.30 before demand from Australian banks lifted the rate back. CTA's were also noted buyers, with model demand also reported for euro-yen as the cross recovered off the Y131.50 low. Dollar-yen was able to move on to a Y90 handle, triggering stops en-route to initial highs around Y90.20 as euro-yen moved above Friday's peak. Gains in Asia were capped at Y90.24 and Y132.75, though early European dealing sees the bid tone still in evidence as both pairs continue to edge higher. Dollar-yen currently stalling at the 50% retracement of the September-October sell-off (Y90.28), with offers seen up to the Y90.40 area, ahead of the next retracement at Y90.81. Euro-yen meanwhile is encountering Ichimoku resistance at Y132.86.

Cable opened Asia around $1.5850/55, initially edging up to early highs of $1.5870 before reversing in line with euro-dollar as the dollar pared back early losses on short covering, prompted by fund demand for dollar-Asia with dollar-yen's rally seen leading the move. Cable eased to a session low of $1.5810, the move down seen on US and European name sales (Swedish name a noted seller of sterling-Nok) with demand from a long term investor able to counter. Mid size Swiss name sales of euro-sterling added to the support for the pound with cable recovering off lows, pushing to a late session high of $1.5883 on decent demand for sterling-yen (yen crosses in general demand). Early Europe leaned back on cable, dropping the rate back to overnight lows and extending the base to $1.5802. Demand seen placed to $1.5800 so far seen providing a cushion but rate retains a heavy feel with recovery attempts so far remaining very shallow. A break of $1.5800 to open a deeper move toward $1.5770 ahead of $1.5750.

Option expiries for today's 1400GMT cut,
* Euro-dollar; $1.4700, $1.4600, $1.4930
* Dollar-yen; Y90.00, Y89.10, Y88.00
* Euro-yen; Y133.05
* Dollar-Swiss; Chf1.0400
* Aussie; $0.8900
* Aussie-Kiwi; NZ$1.2340

European equity bourses are seen opening higher Monday, helped by strength on Wall St in Friday's session. Traders are reporting some positive sentiment as the earnings season begins, with Philips (PHIA) today reporting a surprise net profit in Q3, helped by cost saving efforts and a one-time gain. One the macro front little is expected an either side of the Atlantic today, with American markets likely to be quite due to Columbus Day. Spreadbetters have the FTSE-100 up 9pts, CAC-40 up 12pts and Xetra-DAX up 23pts.

Goverrnment bond supply from the eurozone increases dramatically this week and is due from France, Germany, Italy, Portugal, Spain and the Netherlands, totaling E23.45bln vs E11.18bln last week. The DSTA kicks off supply on Tuesday with tap of the 2.75% Jan 2015 DSL for between E1.5-2.5bln. Germany re-opens the 1.25% Sept 2011 Schatz on Wednesday for up to E4.0bln. Also on Wednesday, Portugal taps the 4.10% Apr 2037 OT issue for indicative size E750mln and Italy taps the 3.50% June 2014 BTP, 5.00% Mar 2025 BTP & 5.00% Sept 2040 BTP for E6.5bln. France taps 4 lines of BTAN issues on Thursday for between E6.5-8.0bln and linkers for between E1.2-1.7bln. Also on Thursday, Spain taps the 4.30% Oct 2019 & 4.40% Jan 2015 Obligacion for between E3-4bln. Also likely is Finland due to sell new 15-year euro benchmark issue this week. Supply outweighs reinvestment flows, with no redemption and coupon payments from Germany E1.3bln, Italy E1.7bln, Greece E0.1bln, Portugal E0.7bln -- turns net cash flows negative E19.7bln vs +E8.5bln last week.

Turning to the technical picture, daily studies continue to point higher for euro-dollar with a bull-cross in the daily stochastic study and a potential bull-cross in momentum, although the move now faces the former high at $1.4845. The 5 & 21-DMAs provide initial support and resistance at $1.4730, $1.4680.

Seems content in 1.4650/1.4820. However, whilst Friday's 1.4675 low has held over the weekend, one can't help but feel in limited liquidity today it looks shaky. Suspect stops below this and we could see a break down through 1.4650 where the market targets 1.4590

Cable continues to risk forming a bear-flag as it tests the lows at $1.5803, although the flag needs a break under $1.5770, where the pattern would imply losses of up to 700 pips. While $1.5770 remains the low, the main Fibonacci retracements are $1.6141, $1.6255, $1.6369 and $1.6406. Initial resistance is from the 5-DMA. at $1.5920. Bears are also eyeing a potential dead-cross of the 55 & 100-day moving average's are warning of a deeper sell-off. The last time these MAs crossed bearishly was in early August 2008 and Cable then sold off 32% to $1.3500.

No surprise that GBP takes the brunt of USD favour, short termist push GBP this morning through 1.5800, certain reports from the CEBR, have suggested that QE will need to be raised to 250 bio and interest rates to remain below 2% until 2014, As you know both I and the market need little excuse to sell GBP and the double whammy of USD bullishness and GBP weakness, would as ever suggest more value in the downside. 1.5760 just gone as I write and there is a general consensus a move to 1.5450 in the shot term is not insurmountable.

Dollar-yen is attempting to break out of the first of it's broad falling ranges and testing the 21-DMA and Kijun lines at Y90.30, Y90.70. So far, daily studies are failing to provide decent support to the pullback but the main topside Fibonacci levels start from Y91.75. Meanwhile, the rally in the cross has stalled in line with the base of the Ichimoku Cloud at Y132.85. Euro-yen has been trading below the Cloud since the sharp fall seen September 25. A move above here would help to negate recent downside pressures, with sentiment also aided after the 200-day moving average again held on a closing basis last week.

Heard that a very aggressive exporter was selling JPY last week, again, coupled with the late weeks vigour for USD we saw the 88.00 barrier very much intact, double top on the charts at 90.45 which my contain further moves up watch for 89.40 below.

A quiet calendar for Monday as US markets remain closed to observe the Columbus Day holiday, although the NYSE nad Nasdaq are open.

European data starts at 0600GMT with Germany wholesale prices, while Germany also sees the October DIW survey at 0900GMT.

Despite the holiday, at 1615GMT, the White House's National Economic Council Director Lawrence Summers addresses the NABE annual meeting, while at 1715GMT, US Treasury Assistant Secretary Alan Krueger addresses the same meeting.

Best Regards,


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