Thursday February 25, 2010 - 20:49:06 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Friday 26 February 2010
News and views
Broad-based risk aversion from European sovereign credit risk fears was the theme of the evening sessions, as Europe and the US digested the new news yesterday that Moody's is also considering downgrading Greece if it doesn't improve its fiscal housekeeping. The S&P500 gapped lower at the open and has failed to rebound so far, down 1.3%. The Eurostoxx 50 earlier lost 1.9%. Major commodities were lower, oil's underperformance at -2.8% affected by weak US jobless claims and core-durable goods reports. Copper lost 1.4%, but gold (++0.8%) caught a safe-haven bid. US treasuries were 3-6bp stronger and the curve flattened 2bp. The 7yr auction was well bid at 2bp inside forecasts, concluding total treasury issuance of $126b for the week. Expectations for a Fed rate hike were pared further, the betting now implying a 48% chance of +25bp in November.
The US dollar did not extend its gains last night, content to range between 80.80 and 81.10. Similarly, the EUR was likely beaten enough during the Asian session to warrant a rest overnight, and it consolidated above the key 1.3450 to as high as 1.3540. GBP continued to slide on UK deficit concerns to just under 1.5200, a fresh post-May low. The yen benefited from the global jitters, rallying from 89.40 to 88.80 overnight.
AUD initially bounced off minor support at 0.8860 to 0.8915, but then made a 10-day low of 0.8800 after the weak US reports.
NZD initially poked its head back above 0.6900 for a few hours but fell with the rest to 0.6850. AUD/NZD's stellar run of late was checked, the fall to 1.2820 (from a Sydney high of 1.2929) forming a bearish key reversal day.
US durable goods orders rose 3.0% in January, but this apparent strength was a timing issue - Boeing saw a spike of 59 new orders in December that didn't make the cut for the durables report that month. Ex-transport orders were down 0.6%, much weaker than forecast, though some of this was mitigated by a big upward revision for December (from 0.9% to 2.0%). And as many have highlighted, the severe storms on the east coast of the US will make Jan/Feb activity data harder to interpret.
US initial jobless claims rose 22k to 496k in the week ended 21 Feb. Continuing claims were also higher at 4617k, mostly due to a 48k upward revision to the previous week. The Labor Department cited weather as a primary reason for the rise - still processing a backlog from last month.
US house prices fell 1.6% in December according to the FHFA measure, the second biggest monthly drop since the housing crisis began. This series has less coverage than the Case-Shiller measure published earlier this week, and has been very volatile recently.
Eurozone confidence surveys for February were broadly unchanged, with mild improvements in services (from -1 to 1) and industry (from -14 to -13), while consumer confidence dropped slightly to -17. The business climate indicator rose from -1.13 to -0.98, still well below average levels.
Eurozone M3 grew 0.1% in the year to January, slightly better than expected and an improvement on the -0.3% pace in December. However, private sector credit continues to slow, with the annual gain slowing from 0.7% to 0.1%.
UK total business investment fell 5.8% in Q4, and Q3 was revised down from -0.6% to -1.8%. The fall was driven by metals and metal goods, chemicals, and engineering goods in both real and nominal terms. This has no implications for the revised Q4 GDP due for release tonight due to different calculation methods for GDP.
AUD/USD and NZD/USD outlook next 24 hours: AUD's key reversal day on Tuesday was ominous, and momentum is now downwards. Any bounce today should struggle beyond the 0.8860-0.8900 area. NZD's resistance area today is around 0.6950.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 26 February 2010. 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 Westpacâ€™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 registered in England as a branch (branch number BR000106) and is authorised and regulated by The Financial Services Authority. Westpac Europe Limited is a company registered in England (number 05660023) and is authorised and regulated by The Financial Services Authority. Â© 2010 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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