NordMarkets Morning FX - October 6

MORNING FX
BRIEFING
The greenback was under widespread sell pressure in the Asian session as the market reacted to a press article in the UK's Independent newspaper, suggesting Arab states are in secret talks with China, Russia, Japan and France to end the use of the dollar for oil trading and move towards a basket of currencies, "within 9 years". Euro-dollar was able to rally steadily over the course of the day from $1.4646 to $1.4724, with early European dealing seeing follow-through buying as the rate pushes on to $1.4734. Dollar-yen dropped below Y89.00 before finding a base at Y88.90, while cable moved back to $1.6000, though sterling again lagged the euro move as the cross extended its recent recovery above stg0.9200. Elsewhere Australia became the first major industrialized nation to tighten policy as the RBA hiked 25bps as well as signalling more to come. Aussie traded up to $0.8820/25 initially, subsequently moving towards $0.8880 and remaining buoyed into European trade.

EURO
Euro-dollar moved to a $1.4670 high in the NY session, closing the day around $1.4655. Early lows were made into the Asian session at $1.4646 before the greenback came under pressure on the UK Independent newspaper article suggesting Arab States were in talks with China, Russia, Japan and France to end oil trading in dollars within nine years and switch to a basket of currencies. Leveraged and macro accounts were the noted buyers as euro-dollar moved back above $1.4700 before encountering some profit taking at $1.4710. Underlying demand remained firm however, with euro-dollar able to push on to a $1.4724 session high after the RBA hikes Aussie rates. Renewed demand into early Europe has seen stops triggered on the break of $1.4730 as the rate moves on towards $1.4750 at writing. Offers seen in this region, as well as the 76.4% retrace of the September-October sell-off at $1.4758. Key area seen as the recent double-day highs just shy of $1.4850.

YEN
Dollar-yen closed Monday towards the bottom-end of its NY range around Y89.55, with euro-yen holding steady into the close around Y131.25. With the dollar under pressure on the Independent newspaper article in the Asian session, dollar-yen was knocked back from an early Y89.65 high, dropping under Y89.00 and printing initial lows at Y88.97. A Japanese bank was a noted buyer of dollars at the fix but found dollar supply overwhelming, with the rate remaining contained under Y89.20 into the afternoon session. Late Asia saw fresh lows being hit at Y88.90, with another round of dollar sales at the European open seeing a marginal extension to Y88.97. Options accounts and prop desks are said to be looking to pick up this dip, with stronger demand noted at Y88.60, ahead of the recent spike lows at Y88.28. Offers back at Y89.20 in small, more at Y89.60/65 and at Y90.00 with stops still lurking above the latter level.

EURUSD - TECHNICALS
Daily studies are beginning to tweak higher for euro-dollar but buy-signals are yet to be confirmed, despite the break higher out of the recent falling range.

RES 4: $1.4862 100% proj of Q4 2008 rally, High 22 Sep 2008
RES 3: $1.4845 Sep high
RES 2: $1.4802 High 24 Sept, Bollinger band top
RES 1: $1.4758 76.4% retracement of Sep pullback

CURRENT LEVEL: $1.4733

SUP 1: $1.4630/45 5, 21-day moving average
SUP 2: $1.4480 Low 2 Oct
SUP 3: $1.4445/52 50.0% of $1.4046 to $1.4845, Support line from Sept 21
SUP 4: $1.4397 55-DMA, High 27 Aug

GBPUSD - TECHNICALS
Cable's underperformance in the overnight dollar move heightens the risk that the pair is forming a bear-flag, where any break of $1.5770 would risk deeper losses. However, this comes amid a bull-cross for the daily stochastic study. 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, $1.6303.

RES 4: $1.6467 High 23 Sep
RES 3: $1.6330/40 Low 23 Sept, 100-day moving average
RES 2: $1.6240 21-day moving average
RES 1: $1.6127/34 Spike high 30 Sep, Low 21 Sept

CURRENT LEVEL: $1.5976

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

USDJPY - TECHNICALS
Recovery remains below the Tenkan line of the Ichimoku cloud at Y90.00 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, although for now, falling range remains.

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 21-DMA, Kijun line of Ichimoku cloud
RES 1: Y90.00 Tenkan line of Ichimoku cloud

CURRENT LEVEL: Y89.27

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

DAILY CALENDAR
European data for Tuesday starts at 0645GMT with the August central government deficit data from France.

UK data sees the 0800GMT release of Sep SMMT Car Registrations followed at 0830GMT by manufacturing data.

The wider measure of industrial production saw the first back-to-back monthly rise since September 2006 last month and is expected to post a third monthly rise in August, with forecasts at 0.2% m/m, -8.7% y/y.

Meanwhile, a boost in motor vehicle production from the car scrappage scheme could well see manufacturing output rise further with the median there looking for 0.3% m/m, -9.3% y/y. Given the unprecedented deterioration seen over the past eighteen months, it is plausible that manufacturing output may continue to see firm data in coming months. Indeed, in theory industrial production should also be helped ahead as companies slow the pace of destocking and begin to replenish depleted inventories. Moreover, the unprecedented loosening in monetary policy should support domestic demand whilst trade-weighted sterling still remains relatively competitive. However, it is still questionable how sustainable any recovery will be into 2010 given that bank lending fundamentally remains tight.

At 1000GMT, ECB Governing Council member Miguel Angel Fernandez Ordonez is due to address the Spanish Parliament, while also today, there are the Annual Meetings of the International Monetary Fund and the World Bank, in Istanbul.

US data starts at 1145GMT with the ICSC-Goldman Store Sales data for the 3 Oct week, followed by the Redbook for the same week at 1255GMT.

At 1400GMT, the US Energy Information Agency releases the monthly Short-Term Energy Outlook and the Winter Heating Fuels overview.

Later data sees Treasury STRIPS at 1900GMT and the weekly ABC News Survey at 2100GMT.

Also, into early tomorrow morning, at 0145GMT, Kansas City Fed President Thomas Hoenig is due to deliver a speech to an economic forum sponsored by the bank's Denver branch.



Best Regards,

NordMarkets.com