Monday, May 10, 2010

Risk Plays Are Back - Euro Makes Heavy Gains

The euro is trading higher into early European dealing Monday, rallying as the EU puts a rescue package in place for eurozone economies. In Asia, the euro initially rallied against the dollar, failed and fell to $1.2808 on news of possible QE from the ECB, before rallying hard to $1.2968 highs.

The euro-yen cross marked an early high of Y119.97 before pulling back to Y118.00 where it then rallied again, this time clearing Y120.00 for a Y120.10 high in late morning trade. Dollar-yen meanwhile was carried higher by the rise in yen crosses, ending the morning around Y92.60, after a Y91.71 to Y92.91 range, and up from Y91.27, where it had ended in the U.S. Friday.

Cable was higher, but gains were capped by the ongoing impasse over the election fallout. Cable was last at $1.4866, having traded to a session high of $1.4907 before pulling back to $1.4855/50.

Developments/fallout from the weekend package will be in focus during the day. Germany trade/current account data at 0600GMT, France IP 0645GMT ahead of the postponed BOE rate announcement at 1100GMT the morning's highlights.

In interest rate markets, June Bunds have opened down 116 ticks as risk-aversion trades are unwound after the European Union finance minister's E720 billion deal. In addition, the European Central Bank would intervene in the government bond markets in a bid to shore up the Eurozone and stop market attacks on heavily-indebted members of the currency club.

In equities, Japan's benchmark stock indices ended Monday's session sharply higher. The Nikkei 225 ended the day higher by 166.11 points, or 1.60%, to stand at 10530.70. The broader-based TOPIX was 12.90 points higher at 944.64.

Spreadbetters are calling European bourse levels higher. Cantor Index last calling the FSTE up 117, the DAX up 175 and the CAC up 159.

Euro-dollar opened early Asia around $1.2885, the rate marked up from Friday's close of $1.2740 as markets adjusted for the weekend debt package worked out by the EU/IMF. Order books were described as heavy with offers with rate quickly dropping back to $1.2800. Rumours of E500bln stabilization package, along with headline of ECB to announce intervention in markets saw rate spike up to $1.2950 where it ran into willing sellers.

Rate eased to $1.2880 as the EU press conference began. Mentioned intervention in debt markets, not FX, saw rate come under pressure, the rate dropping back to $1.2790, with the result in Germany NRW providing a knock for Chancellor Merkel as she loses her majority in the upper house, also adding weight. Asian reserve manager buys provided the demand to lift rate back to $1.2950, with eventual break taking rate on to $1.2968. Rate eased back to $1.2900 into early Europe before picking up fresh demand that has lifted the rate on to $1.2978. Offers seen placed between $1.2990/00, a break to open a move toward $1.3040/50. Support $1.2900, ahead of $1.2860/50.

RES 4: $1.3365 High 30 Apr
RES 3: $1.3270 21-day moving average
RES 2: $1.3115 Low 28 Apr
RES 1: $1.3041 Fibonacci retracement


SUP 1: $1.2700 Bollinger band
SUP 2: $1.2515 Low 6 May
SUP 3: $1.2459 Recovery low 4 March
SUP 4: $1.2329 Lows Oct 2008

The sharp moves in dollar-yen have left the daily studies mixed with a bear-cross in the slow-stochastic study but momentum turning off lows. The pair has recovered the Ichimoku cloud, which now turns support from Y91.90.

Euro-yen remains well below the base of the Ichimoku cloud despite the recovery and attempt for the daily studies to recover. If bulls can maintain a bounce, the main Fibonacci levels include Y120.21 and Y121.22.

RES 4: Y95.19 Resistance line from 7 Jan
RES 3: Y95.05/09 High 24 Aug, 61.8% retracement of 2009 decline
RES 2: Y93.25 21-day moving average
RES 1: Y92.70 5-day moving average


SUP 1: Y91.90 55-day moving average & Top of Ichimoku cloud
SUP 2: Y91.50 100-day moving average
SUP 3: Y91.35 Base of Ichimoku cloud
SUP 4: Y88.22 Spike low

Opened Asia around $1.4855 from the NY close at $1.4818 and tracked euro-dollar's initial corrective pullback to $1.4764. Rate bounced back to session highs of $1.4907 before easing back to find support above $1.4850 into the Europe open, edging back to $1.4895, currently around $1.4880. Developments in talks to form the next UK government to be watched, with today's postponed BOE policy announcement also in view.

The current political impasse so far being smoothed by reports that talks between the Conservatives and LidDems are going well but market will want to have some definite outcome sooner rather than later. Offers seen placed between $1.4900/10, a break of $1.4915 to open a move toward $1.4935/50. Support seen back at $1.4855/50 ahead of $1.4820 and $1.4800.

RES 4: $1.5358 Resistance line 19 Jan
RES 3: $1.5265 21-day moving average
RES 2: $1.5126 Low 28 Apr
RES 1: $1.4955 5-day moving average


SUP 1: $1.4712 Low 6 May
SUP 2: $1.4487 61.8% projection
SUP 3: $1.4475 Low 7 May
SUP 4: $1.4336 76.4% of 2009/10 range 

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