Friday October 29, 2010 - 03:44:25 GMT
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FX Thoughts for the Day - www.fxthoughts.com
Morning Briefing : 29-Oct-2010 -0340 GMT
US indicies closed the session flat with Dow at 11,114 (down 0.11%) and S&P 500 at 1,184 (up 0.16%). Dow is trading in well defined channel and the line on the sand for the short term uptrend is 11,000. Below 11,000 Dow can target 10,700 and resistance is expected around 11,200. There is 3Q GDp from US and expectation is for a growth of 2%.
Asia indicies are in the red with 1-1.7% cut, Nikkei has broken below its 1 month range of 9300-9700 and is now trading at 9200, down 1.7%. Economic data from Japan this morning has been worse than expected, Industral Production numbers like IP and sentiment indicators have dissapointed and the Consumer Inflation numbers indicate deflation is becoming entrenched. However, the Jobless numbers have shown a downtick towards 5% from 5.1%. All in a bear fodder for Japanese stock market.
Former Asian arm of AIG, AIA, made its debut on HongKong, and is trading with a gain of 12%. However, the broader market has different story to tell. Hangseng is down 1.3% and Shanghai is down 0.83% (3,110). Nifty saw expiry related selling in the last hour of trade and shut shop at 5987.70 (down 0.41%). As expected Nifty after recovering close to resistance zone of 6080-6100 witnessed a sharp sell-off. We expect further erosion in Nifty towards 5950 in the coming session.
Crude (81.97) is continuing to trade sideways and it is expected to retain the range 79.50-84.50 until the FOMC meet which is scheduled for next week. While above 80, our outlook remains bullish for a rise towards 88-90 in the coming days/weeks on a strong break above 85.
Gold (1341.80) has risen sharply yesterday from near its significant Support at 1320 and is keeping up the overall bullish sentiment intact. With Support at 1320 continuing to hold, a strong break above 1350 might see further upmove towards 1380-1400 in the coming days/weeks.
Minor recovery in the Dolla Index (77.30) after it lost substantial ground yesterday, falling to a low of 77.17.
Star performers over yesterday and today are the Pound (1.5945) and the Yen (80.62). The Euro (1.3897) had risen to a late US/ early Asia high of 1.3951 and has dipped back a bit from there. In contrast, Dollar-Swiss (0.9840) remains relatively strong. The Aussie (0.9765) is trading higher than low of 0.9651 seen on Wednesday.
To put things into perspective, for one, the markets are continuing to square up positions ahead of the FOMC. For another, the Dollar is dropping to possibly re-test the earlier low of 76.14-04 on the Dollar Index. This is a super-crucial Support. If it does not break on a re-test next week, there would be chances of a strong rebound in the Dollar. There is at least a 30-50% chance that the Support will hold because the market is now seriously considering the possibility that the Fed might not "shock and awe" but might rather be there to provide $100 bln per month on an ongoing basis for anywhere between 5-10 months at least. Such an outcome might not be enough to decisively break the Dollar's back once and for all, or in other words there could be chances that 76.14-04 might hold. Might be something to consider.
Among the Emerging currencies we track, USD-SGD trades a little lower near 1.2987, compared to 1.3070 on Wednesday. Dollar-Won trades near 1124.60. The Brazilian Real (1.7135) could see some gains next week, after having weakened 3% from the level of 1.6619 seen two weeks ago on 15-Oct. Its a mixed outlook among the Emerging currencies. Dollar-Rupee had closed at 44.52 yesterday and might remain capped below 44.60 today as well.
The 3M USD LIBOR was unchaged at 0.29%. The 2Y and 10Y yields were down 5 bps and 4 bps each to quote at 0.36% and 2.65% respectively.
Interesting to note on the US yield charts is that the 5Y and 30Y yields have started to bounce back over the last few weeks. The 5Y yield has bounced back from its key Trendline Support at 1.1% and there is a Double-Bottom pattern seen on the 30Y yield graph. This could be a major development going forward in 2011. To see the US Yield graph click on the following link:
23:30 GMT JP Unemp
...Expected 5.1%...Previous 5.1%
09:00 GMT EU Unemp
...Expected 10.1%...Previous 10.1%
12:30 GMT US GDP Q3 '10 (Adv)
......Expected 2.1%...Previous 1.7%
12:30 GMT CA GDP
...Expected 0.3%...Previous -0.1%
...Actual <0.10%...Previous <0.10%
EU Biz Climate
...Actual 104.1...Previous 103.2
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