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Forex Research - Morning Report
Morning Report Wednesday 24 February 2010
News and views
Risk aversion reigned during the European and US sessions. The US markets were hurt mainly by the very weak consumer confidence report released a few hours ago, although a smattering of bearish global news items earlier cast a downbeat backdrop, sending the S&P500 1.3% lower on the day. Fitch downgraded Greece's four largest lenders one notch to BBB with a negative outlook, and Greece's proposed bond issue looked like being scaled down. Commodities were 1.4% lower overall, larger falls seen in copper (-2.8%), silver (-2.4%) and oil (-1.9%). The weak consumer confidence report was a timely boost for the US 2yr treasury note auction which went at 0.895%, 2bp better than forecast with healthy bidding and offshore central bank interest. The treasuries yield curve flattened, 2yr down 4bp and 10yr down 10bp on the day.
The US dollar wore its safe-haven cloak, the index almost reaching 81.00. The EUR started its sell-off early in the session, German business confidence slipping. From a 1.3692 intraday peak, it recently touched 1.3500. GBP fell from 1.5575 to just under 1.5400, the BoE's King providing a dovish assessment to the Government and leaving the door open for more QE. USD/JPY fell from 91.00 to around 90.00, the news overriding any yen-bearish influences from this week's large EM currency investment trust launches.
AUD peaked at 0.9071 early Europe, after an upbeat speech from the RBA's Battellino noted inflation risks, but global events pushed it down to 0.8879.
NZD underperformed against the majors, falling from 0.7060 to just under 0.6900. AUD/NZD made a fresh post-May high of 1.2880.
US consumer confidence falls 10.5 pts in Feb, to its lowest level since April last year. This was a steep and broad-based decline led by expectations (perhaps related to stock market losses earlier in the month) although the present measure was also off quite sharply. Confidence in the labour market weakened after improving in the previous two months.
US house prices fell at their slowest pace over the year to Dec since May 2007, down 3.1% yr, according to S&P/CaseShiller.
The Richmond Fed factory index rose from -2 to 2 in Feb, with shipments and orders stronger but jobs weaker. The Richmond Fed services index was weaker however, down from 1 to -16 in Feb.
German Ifo business climate index slips from 95.8 to 95.2 in Feb, its first decline since it began recovering steeply in April last year. The current assessment fell but expectations edged up slightly. It seems weaker economic data and budget deficit concerns are weighing on bosses' sentiment, although harsh weather was also cited as a factor.
Bank of England Governor King in parliamentary testimony described the economy as "fragile... healing will take time... recovery slow and protracted... risks to the downside" although he acknowledged that there were some signs of recovery and that financial market conditions have continued to improve.
AUD/USD and NZD/USD outlook next 24 hours: AUD is currently testing 0.8880 support, and looks vulnerable to a break down to 0.8800. NZD's support area is around 0.6900, rallies likely to be sold today.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 14 November 2007. All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. Â© 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.
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