Friday November 19, 2010 - 04:12:57 GMT
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FX Thoughts for the Day - www.fxthoughts.com
Morning Briefing : 19-Nov-2010 -0340 GMT
US stock markets ended the day on a positive note with key averages clocking over 1.5% gains on the back of strong manufacturing surveys and correlated risk trade around the globe. We have been saying for the last two days that a short-term bottom in risk assets is highly likely and a recovery is expected. Dow closed at 11,181 (up 1.57%) and S&P 500 closed at 1,197 (up 1.54%). Dow faces resistance between 11,200-220 and then between 11,280-300 and support is expected around 11,140-150 and then at 11,100.
Most Asian indices are trading in the green with Nikkei leading the charge with a 0.61% gain at 10,075, Shanghai up 0.14% at 3,006, Hangseng flat at 23,637 and Kospi up 0.37% at 1935. We have been having a favourable view on Nikkei for some time now and we continue to believe that it can target 10,200-250 in the short term. There is rumour of Chinese rate hike later in the day and we perceive that as more of a volatility creator than a trend changer. Yesterday, Nifty bounced from its key support around 5930-50 to close at 5998 (up 0.17%). We have been talking about the 5930-50 support and since that has been successfully tested we would be buyers in the market with an overall target of 6100 to 6150. However, it is to be noted that in a circumstance where Nifty closes below 5900 then the probability of a significant fall can open up.
Crude (82.01) has bounced back and is now trading near 82. The weaker dollar and easing concerns on Ireland's debt crisis supported the rise. Technically, the crucial Support at 80.00, mentioned earlier has held very well and is retaining the overall bullish sentiment. But however, there significant Resistance is seen in 84.00-85.00 region a strong break above which has to be seen for a rise towards 90+ levels.
Gold (1358.30) has bounced back from yesterday's low of 1334. A further rise towards 1380 is looking likely. 1380 is a very important level to watch for. A break above it will continue the overall uptrend. But, however, failure to see a break above 1380 might increase the chances of a dip once again towards 1350-30. Also a pull back from 1380 will result in the formation of a Head and Shoulder pattern.
Further dip/ profit-taking was seen in the Dollar Index (78.61) yesterday, which is now trading below an important Resistance at 78.80, but above an important intra-day Support at 78.47. The Euro (1.3635) gained through yesterday on hopes of a bailout for Ireland and successful sale of bonds by Spain. However, it now faces an important intra-day Resistance at 1.3675. We may see more near term weakness in the Dollar going into the weekend, on account of both hope about the Irish bailout as well as weekend profit-taking. The longer term picture remains supportive of the Dollar however.
The Pound (1.6031) also rose quite well yesterday, bouncing off an important trendline Support. It now has an intra-day Resistance at 1.6050, but can gain further towards 1.6150 if that is broken. Dollar-Swiss (0.9964) is bucking the trend of Dollar weakness and has risen instead, touching an early-Asia high of 0.9997. A further rise towards 1.0065 is possible. Dollar-Yen (83.51) continues to see a steady upmove and might be good for a rise towards 84.45. Both the Swiss Franc and the Yen have weakened over the last three weeks, but have important Supports (Resistances for the Dollar) coming up over the next couple of days.
The Aussie (0.9871) recovered well yesterday, but is coming off a bit from the early Asia high of 0.9912. Good Resistance is seen at 0.9920 and a dip towards 0.9840 is possible.
Strength was seen in the Brazilian Real (1.7110) yesterday, reflecting the dip in the Dollar against the "risk" assets. It should be noted, however, that US Bond Yields are rising. This is going to take some sheen off the current "high yielders" going forward. The Korean Won (1131.70) has strengthened from the level of 1147.30 seen on Wednesday. Further gains towards 1115 are possible. Similarly, USD-SGD (1.2965) has fallen from the high of 1.3070-80 seen earlier in the week and might dip further towards 1.2890.
Dollar-Rupee came off from 45.5675 yesterday, to close at 45.2250. It may dip further towards 44.80 over the next few days.
The 3M USD LIBOR was unchanged at 0.28%. The 2Y yields and 10Y yields were down 1 bps and 2 bps to quote at 0.48% and 2.87% respectively.
In an interim relief, Spain successfully sold 3.7 bln Euros in the bond market yesterday, with yields lower than other similar traded securities in the market.
The Japanese 10Y yields touched a high of 1.1% yesterday. The yields on US 30Y bonds have also started rising after seeing its all time lows since 1971. In the coming months, if this rise (in yields) continues, we may see a trend reversal in the bonds market wherein the yields have been falling since 1981.
NO major data release today
Sep US Philifed Index
...Actual 22.5...Previous 1.0
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