Monday, October 19, 2009

NordMarkets Morning FX - October 19

MORNING FX

BRIEFING
Weekend press reports provided the main trading influence into early Asian trade Monday, ITEM Club report suggesting sterling would remain close to parity with the euro for up to 4 years weighed on the pound, article in the AFR that recent comments from RBA Stevens had been misinterpreted and next rate decision in Australia still data dependent knocked Aussie lower. WSJ report 'Euro strength is worrisome' noting that today's Luxembourg meeting of EU-16 FinMins is likely to talk about recent euro strength (ECB Trichet also due to travel to China before year end) helped weigh on the euro. Euro-dollar dropped to initial lows of $1.4829 before demand emerged ahead of stops at $1.4825 to correct it back to $1.4890, cable dropped to $1.6281 but release of positive Rightmove housing data allowed it to recover to $1.6371, filling the gap from NY's close before BOE Posen comments on support for QE extension knocked it lower again. Dollar-yen was basically sidelined, pivoting Y91.00. Main forex driver remains interest rates/time table of exit strategies for liquidity provisions.

EURO
Euro-dollar opened Asia around $1.4893 and initially edged to session highs of $1.4920 before reversing, the move down gaining momentum as a black-box fund provided added weight to take it through $1.4880, with triggered stops below $1.4850 and $1.4835 taking it to lows of $1.4829. Euro managed to recover, the recovery aided by euro-yen demand, taking the rate to $1.4890 ahead of the European open. The late rally saw early Europe sell back into the move, with a WSJ report further highlighting today's Luxembourg meeting of EU-16 FinMin's that currency strength will likely be discussed, the rate easing back to $1.4870, currently around $1.4880. Bids remain in place at $1.4870 (38.2% $1.4829/93), a break to allow for a deeper move toward $1.4855/45 ahead of $1.4829. Bids seen placed between $1.4830/25 with overnight talk mentioning stops placed on a break of $1.4825. A break here exposes next support at $1.4800, with more stops noted below $1.4795. Offers $1.4890/00, $1.4920-30/35 with stronger interest placed between $1.4960/70.

Potential double-day high at $1.4968, sets up risk of a reversal lower, especially as this level represented the near-term upside bull-flag objective and also the capped topside in November 2007. The dailt stochastic remains firm, but while $1.4968 defines the high, near-term Fibonacci levels are $1.4781, $1.4724 and $1.4666.

RES 4: $1.5163 76.4% of $1.6039 to $1.2329
RES 3: $1.5130 2.0% moving average envelope
RES 2: $1.5059 Top of October channel
RES 1: $1.4968/72 Double-top, Major high Nov 2007, Bull flag

CURRENT LEVEL: $1.4899

SUP 1: $1.4844 Support line, High 23 Sep
SUP 2: $1.4735 21-day moving average
SUP 3: $1.4500 Base of Bollinger band
SUP 4: $1.4480 Low 2 Oct



YEN
After extending October highs to Y91.33 in the NY session Friday, dollar-yen eased back to close around Y90.93, while euro-yen ended with decent gains on the week around Y135.50. Data released in Japan Monday showed the August Tertiary Index rising 0.3% versus 0.6% in July, slightly better than market expectations, while the minutes of the latest BoJ decision were released with no surprises. Dollar-yen hit early highs at Y91.15 in Asia as euro-yen topped out at Y135.91, both pairs then coming lower into the fix, dollar-yen easing back below Y90.80 as the cross dropped to Y134.76. Balance of the session was fairly subdued as dollar-yen struggled to regain the Y91 handle, slipping back to post late lows at Y90.73, while euro-yen held between Y135.00/20. Bids reported below Y90.60 from US accounts, while exporter supply is now placed at and above Y91.00 with stops said to come in on a break of Y91.25. Euro-yen still holding above the Ichimoku Cloud following last week's topside break, offers seen at Y136.00/10, ahead of resistance at Y136.44 (76.4% August-October sell-off).

Dollar-yen has put in a short-term base following bounce ahead of key support levels at Y87.12 -- the Dec/Jan low and Y87.44/51, where former is channel base from May 22 and latter a trend line from April 1995. In addition, the break above the 21-DMA at Y90.05 was also encouraging and close above will encourage bulls to target Y91.75 Fibonacci level.

RES 4: Y92.90 50% retracement of Aug/Oct decline
RES 3: Y92.53 Failure high 21 Sept
RES 2: Y91.75 38.2% retracement of Aug/Oct decline
RES 1: Y91.33 High 16 Oct

CURRENT LEVEL: Y90.62

SUP 1: Y90.44 High 12 Oct
SUP 2: Y90.05/25 5, 21-day moving average & Kijun line
SUP 3: Y89.60 Tenkan line of Ichimoku cloud
SUP 4: Y88.01 Low 7 Oct



STERLING
Gapped from the NY closing level around $1.6355 to an opening low at $1.6281 as early Wellington traders marked the rate lower on the back of the weekend ITEM Club report suggesting sterling would hold close to parity with the euro for up to 4 years. Rate reversed off of the early lows into Tokyo trade with demand for sterling-yen lifting the rate to a high of $1.6371, the move filling the gap. Cable drifted lower again, the move down gaining momentum as market then reacted to reported comments from BOE Posen that he would support further QE extension. Cable dropped back to retest earlier lows before again picking up demand interest on the dip, the rate edging back to $1.6340/45. Fresh sales emerged into early Europe to correct it back to $1.6285, snapping back to $1.6320/25 before settling above the figure. Sterling's underlying positive recovery tone said to remain in place, with Barclays suggesting that the pound is vulnerable more to upside data surprises. Support seen at $1.6285/80, stops noted $1.6280/75. A break exposes $1.6255/50. Offers $1.6320/25, $1.6340/50, $1.6370/80.

Cable broke and closed over the 21-DMA for the first time since Sep 17 with the move supported by bullish daily studies and a bull-cross of the 5 & 21-DMAs. The move is now testing the top of the Bollinger band and is stalling around the 100-DMA of $1.6350, which may encourage further profit-taking. Initial support is the 5-DMA at $1.6180

RES 4: $1.6740 High 11 Sep
RES 3: $1.6532 61.8% retracement of $1.7041-$1.5708
RES 2: $1.6449/67 Resistance line from Aug 6, High 23 Sep
RES 1: $1.6415 Top of the daily Bollinger band

CURRENT LEVEL: $1.6308

SUP 1: $1.6117/34 High 8 Oct, Low 1 Sept, Spike high 30 Sep, Low 21 Sep
SUP 2: $1.6040 21-day moving average
SUP 3: $1.5708/21 Low 13 Oct, High Dec 2008 & 50.0% of $1.44 advance
SUP 4: $1.5660/88 Daily Bollinger band base, 38.2% of $1.3500 to $1.7041




OPTIONS AND MORE
FX Option expiries for today's 1400GMT cut,
* Euro-dollar; $1.4900, $1.4980, $1.5000
* Dollar-yen; Y90.20, Y90.00
* Euro-yen; Y131.45, Y131.30
* Cable; $1.6000
* Sterling-yen; Y140.50
* Aussie; $0.9100


In terms of European government bond issuance this week, it decreases dramatically compared to last week and is due from Ireland and Slovakia -- total E1.15bln vs E29.5bln last week. Slovakia is due auction the 4.50% May 2026 SLOVGB series 206 bond on Monday for E100-200mln. The Ireland National Treasury Management Agency (NTMA) is due sell between E750mln to E1.0 billion of the the 3.90% Mar 2012 IGB and 4.60% Apr 2016 IGB issues on Tuesday. However, supply is outweighed by reinvestment flows, with no redemption and coupon payments from Greece E1.0bln, Austria E0.5bln, Ireland E0.3bln -- to turn net cash flows positive to the tune of E0.7bln vs -E25.7bln last week.

Elsewhere, Japan's benchmark stock indices ended Monday's session mixed, rallying off the session lows in the afternoon session. The Nikkei 225 was lower by 21.05 points, or 0.21%, to stand at 10236.51 However, the broader-based TOPIX was 4.85 points higher at 905.80. Volume for the Nikkei constituents totalled a preliminary 1.274 bln shares, with 110 issues trading higher, 101 lower and 14 unchanged.

DAILY CALENDAR
The Eurozone finance ministers meet in Luxembourg today, although data is limited in Europe with just the 0900GMT release of EMU construction production.

Also at 0900GMT, Ifo head Hans-Werner Sinn talks to the press in Berlin, while at 0930GMT, ECB Governing Council member Ewald Nowotny is due to hold the opening address at a conference on Austria and Central Europe, in Vienna

At 1000GMT, the Bundesbank issues it's monthly report, while later on, at 1215GMT, Ifo head Hans-Werner Sinn is back on the wires, delivering a speech on "European strategies in answer to the economic crisis," in Berlin.

US data starts at 1330GMT with the weekly MNI Capital Goods Index, which is followed at 1430GMT by the weekly MNI Retail Trade Index.

At 1500GMT, Fed Chairman Ben Bernanke delivers a speech on Asia and the global crisis at the San Francisco Fed's Asia Economic Policy Conference in Santa Barbara. An audience Q&A session is expected to follow.

At 1620GMT, Kansas City Fed President Thomas Hoenig moderates a panel on economic growth and the institutional framework, along with ECB's Christian Noyer, and Argentina Central Bank Gov. Martin Redrado at a Bank of Mexico International conference in Mexico City.

US data continues at 1700GMT with the Oct Housing Market Index (NAHB). Later on, at 2030GMT, Fed Vice Chair Donald Kohn delivers brief remarks on competition and productivity and also moderates a panel at the Bank of Mexico International conference, while at 2150GMT at the same event, Bank of Spain Gov. Miguel Fernandez Ordonez appears on a panel on price stability.



Best Regards,

NordMarkets.com

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