NordMarkets Morning FX - October 5

MORNING FX
BRIEFING
The G7 failed to mention dollar weakness in its statement following the weekend meeting in Istanbul. Traders said dollar-yen and the crosses initially traded lower in Asia after Japanese Finmin Fujii comments, (if currencies show some excessive moves in a biased direction, we will take action). Dollar-yen was off 60-points to Y89.23 as euro-yen dropped back to Y130.50 before a strong bounce back as Tokyo names bought most pairs over the Tokyo fix. The market was caught short with liquidity reduced thanks to China and Australia holidays, with euro-yen putting on 100-points to Y131.65 as dollar-yen climbed back to Y89.90, while sterling-yen rallied 150-points to Y144.00. Yen moves dictated euro-dollar and cable direction, as these pairs climbed off $1.4582 and $1.5921 lows, euro moving back to $1.4648 as cable regained the $1.60 handle. Aussie was well bid after more hawkish domestic press articles ahead of tomorrow's RBA decision, moving up 100-points to $0.8740, with traders noting there is now a 50% chance of a 25bps hike priced in.

EURO
A volatile NY session Friday saw euro-dollar initially drop to $1.4480 in a knee-jerk reaction to the disappointing US employment data, before a strong bounce allowed the pair to close back on a $1.46 handle. Ireland's resounding "Yes" vote for the Lisbon Treaty over the weekend was seen as mildly euro supportive, though main flows into Asia were driven by moves in the crosses, as euro-yen initially came lower. Euro-dollar eased to early session lows at $1.4582 before a strong bounce in the cross pulled the pair back on to the $1.46 handle, momentum strong enough to move the rate back to $1.4648. Gains were capped ahead of Friday's $1.4650 NY high with the rate then consolidating above $1.4625 over the balance of the Asian day. Reserve interests are said to have been cushioning euro-dollar dips over recent sessions, while offers are seen into $1.4650, more around $1.4670 with stops above.

Turning to the technical picture, the euro is attempting to break out of a falling range from the 23 Sep highs with resistance strengthened by the 21-DMA at $1.4630 and 50% level at $1.4663. The daily stochastic study is still pointing lower and still well above oversold, while the 5 & 21-DMAs have now made a bear-cross. Initial support is the 5-DMA at $1.4595.

RES 4: $1.4845/62 Sep high, 100% proj of Q4 2008 rally, High 22 Sep 2008
RES 3: $1.4802 High 24 Sept
RES 2: $1.4663 50% retracement of the decline from $1.4845
RES 1: $1.4630 21-day moving average

CURRENT LEVEL: $1.4630

SUP 1: $1.4595 5-day moving average
SUP 2: $1.4445/47 50.0% of $1.4046 to $1.4845, High 5 Aug
SUP 3: $1.4380/97 55-DMA/ High 27 Aug
SUP 4: $1.4351 61.8% retracement of $1.4046 to $1.4845

YEN
Dollar-yen recovered initially NY losses Friday to close back around Y89.70, with euro-yen also bouncing to end the week around Y131.00. Finmin Fujii comments were again the focus into the Asian session following the G7 meeting, as he said "if currencies show some excessive moves in a biased direction, we will take action". Traders said dollar-yen and the crosses initially traded lower to Y89.23 and Y130.50 before the market seemingly took the Fujii comments as a veiled intervention threat, Tokyo names said to have been big buyers over the fix. Dollar-yen recovered back to trade just shy of Y90.00 as euro-yen traded up 100-points to Y131.65 and sterling-yen moved back to Y144.00. Dollar-yen easing back to trade around Y89.75 into the European session, traders now reporting stops on a break of Y90.00, more in the Y90.20/30 area. Note however exporter offers layered on a Y90 handle, ahead of larger stops on a break above Y91.00.

Dollar-yen's recovery remains below the Tenkan line of the Ichimoku cloud and 5-DMA at Y89.85 and Y90.20 with daily studies not at all convincing of a stronger recovery. Key topside level is at Y91.75, which was the major low seen in July and Fibonacci levels are Y91.94, Y93.05. Meanwhile, the cross remains below the Ichimoku cloud base as daily studies remain weak and bears look for a test of the 200-day moving average at Y129.60.

RES 4: Y92.53 Failure high 21 Sept
RES 3: Y91.75/94 Major low July, 38.2% retracement of Aug/Sep decline
RES 2: Y90.90/20 21-DMA, Kijun line of Ichimoku cloud
RES 1: Y90.20 Tenkan line of Ichimoku cloud

CURRENT LEVEL: Y89.79

SUP 1: Y88.23 Low 25 Sep
SUP 2: Y87.12 Major lows Dec/Jan
SUP 3: Y86.05 Monthly high June 1995
SUP 4: Y84.50 Monthly low July 1995

CABLE
Cable recovered from the $1.5805 NY low to close back above $1.5900 Friday, while, euro-sterling ended around stg0.9140. Flows into the Asian session were largely driven by sterling-yen as the cross initially sold off before a strong bounce back towards Y144.00. Cable bounced off the $1.5921 low to regain the $1.60 handle, moving to $1.6007 in Asia, while euro-sterling traded between stg0.9146/71. Cable initially moved above $1.6020 into the European session before slipping back to trade around $1.5975 at writing, with euro-sterling sitting towards the top-end of the day's range. Cable offers reported around the $1.6125 area with some stops above, while expiry interest is highlighted at $1.6135 for the NY cut. Key resistance area seen as last week's highs in the $1.6130 zone.

Cable sees the daily stochastic remain soft, although both it and momentum are attempting to turn off lows. While $1.5770 remains the low, the main Fibonacci retracements are $1.6141, $1.6255, $1.6369 and $1.6406 with more minor Fibonacci levels at $1.6119, $1.6201 and $1.6303. In euro-sterling, daily studies are now pointing back lower raising bear's hopes of a pullback towards further Fibonacci retracements of the Aug/Sep advance from stg0.8980. stg0.9191/98 offers initial resistance, being 50% of the stg0.9304 decline and Friday's high.

RES 4: $1.6467 High 23 Sep
RES 3: $1.6330/40 Low 23 Sept, 100-day moving average
RES 2: $1.6260 21-day moving average
RES 1: $1.6127/34 Spike high 30 Sep, Low 21 Sept

CURRENT LEVEL: $1.5997

SUP 1: $1.5803 Low 8 June, 1 Oct
SUP 2: $1.5770 Low 28 Sept
SUP 3: $1.5721 High Dec 2008 & 50.0% of $1.44 advance
SUP 4: $1.5688 38.2% of $1.3500 to $1.7041

INDICATORS
FX: Option expiries for today's 1400GMT cut
* Euro-dollar; $1.4650
* Dollar-yen; Y88.95, Y90.00, Y91.00
* Dollar-Canada; C$1.0700, C$1.0900
* Aussie; $0.8750
* Cable; $1.6135

European government bond supply drops dramatically this week and is due from Austria, Germany and Slovakia, totalling E4.3bln vs E30.255bln last week. Slovakia is due on Monday for no more than E127mln. Austria taps E2.2bln on Tuesday and Germany up to E2.0bln on Wednesday. Supply is countered by reinvestment flows from Germany, with redemption for E18bln and coupon payments for E1.7bln -- to turn net cash flows positive to the tune of E15.4bln vs -E14.05bln last week.

Elsewhere, seculative accounts increased their net euro long positions and modestly pared back their net yen long positions as implied by the September 29 data released Friday by the U.S. CFTC. The net position in non-commercial futures (ex-options) showed that speculators increased their net euro long to +39,766 contracts from last week's net long of +38,000 contracts. In the yen, speculative accounts had a net yen long of +44,856 contracts versus last week's net yen long of +45,615 contracts, which was the largest since February 3.

DAILY CALENDAR
Monday morning in Europe sees the final releases of services PMIs from France (0743GMT), Germany (0753GMT), leading up to the EMU release at 0758GMT.

UK data at 0830GMT also sees the CIPS Services PMI data as well as Official Reserves.

Further European data sees EMU August retail trade at 0900GMT, which is expected to come in at -0.4% m/m, -2.2% y/y.

At 0945GMT, ECB Executive Board member Lorenzo Bini Smaghi participates in a Euro50 Group seminar in Istanbul, while at 1100GMT, Bundesbank Board member Thilo Sarrazin delivers a speech on the results of the German election.

US data starts at 1330GMT with the weekly MNI Capital Goods Index, which is followed at 1400GMT by the Employment Trends Index and the non-manufacturing ISM Index as well as at 1430GMT by the weekly MNI Retail Trade Index.

The ISM's non-manufacturing index is expected to rise to a reading of 50.0 in September after rising to 48.4 in August.

Meanwhile, back in Europe at 1415GMT, ECB Executive Board member Gertrude Tumpel-Gugerell is due to give a keynote speech at Bad Ischler Dialog organised by sterreichische Sozialpartner, in Bad Ischl, Austria.



Best Regards,

NordMarkets.com