Thursday October 28, 2010 - 19:27:06 GMT
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Forex Blog - Morning Report (Westpac)
Morning Report Friday 29 October 2010
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The US dollar and US treasury yields remained under pressure. The Fed yesterday sought opinions from bond dealers about the scope of the forthcoming QE2, leading to speculation it does not want to underwhelm the market with the program. US equities opened strongly, helped by a better US jobless claims report, but failed to follow through as global corporate earnings were mixed and the S&P500 index is currently unchanged. Commodities (CRB) were muted at +0.3%, although wheat rose 2.3% on dry US weather and lower Australian inventories. US 10yr treasury yields fell 8bp to 2.64% before settling at 2.67%. The 7yr auction was solid, and the best this week, 1bp better than market and 3.0 times covered. There is speculation QE2 will target the intermediate maturities.
The US dollar underperformed all the majors yesterday, the DXY index falling to 77.17. EUR was the strongest of the majors, and rose from 1.3800 to almost 1.3950, helped by an EC business confidence survey which rose to a post-recession high. USD/JPY fell from 81.60 to 80.90.
AUD ground slightly higher after the Sydney close, from 0.9760 to 0.9820, but retreated with US equities to 0.9770 for little net gain.
NZD rose from 0.7480 to 0.7555 and settled at 0.7535. AUD/NZD broke below 1.3000 support to 1.2965.
US initial jobless claims fall 21k to 434k. This fall in claims last week may have been impacted by seasonal adjustment issues related to the timing of the Columbus Day holiday, but as the data stand they suggest job market conditions may have improved in late October - this is the lowest reading since a distorted July one-off and prior to that, since 2008. If claims don't bounce in the next week's data that would confirm this healthy signal. In the prior week, continuing claims fell 122k to 4356k, a new cycle low, which also looks encouraging but, as always, reflects claim benefits expiring as well as jobs being found.
Japanese retail sales fell 3% in Sep against expectations for a 0.5% fall; over the year, retail sales are 1.2% higher. The decline in retail sales in September looks to have been concentrated in small retail stores with large store sales up 0.9% in September thanks to a 2.5% increase in supermarket sales.
BoJ gives detail on asset purchase program. At its October meeting, the BoJ decided on the key details of the previously announced asset purchase plan. The details reinforce the fact that the BoJ is a timid deflation fighter, who is deeply sceptical of quantitative measures, but who feels compelled to go through the motions.
European business surveys keep rising to new post recession highs in Oct. The European Commission's economic confidence index for the eurozone rose from 103.2 to 104.1, the fifth straight gain after its Greek crisis wobble. The separate business climate indicator rose from 0.76 to 0.98. These results, backed by some private sector surveys, stand in contrast to generally weakening business surveys in other major western economies.
UK house prices fall 0.7% in Oct. The Nationwide index has not posted a monthly rise since May, and annual prices growth has slowed from 10.5% yr in April to 1.4% this month. These results mirror the loss of momentum seen in most other housing market indicators since the sector's recovery seemingly faltered early this year.
UK CBI retail survey moderates in Oct. Reported sales eased from Sep's multi-year high of 49 to a still strong 36 in Oct. However the CBI cautioned that durable goods sales were weakening, a sign of underlying weakness.
AUD/USD and NZD/USD outlook next 24 hours: Tonight's batch of US data, notably GDP, as well as the ebb and flow of QE2 speculation, will dominate currency direction. AUD has intraday support at 0.9650 and resistance at 0.9850, private sector credit data of minor interest. NZD is overbought (intraday) and should pull back from the top of a well-defined intraday range of 0.7420-0.7570, barring large surprises from today's building permits and trade balance releases.
.Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 13 August 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
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