Monday November 22, 2010 - 19:11:11 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Tuesday 24 November 2010
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Risk sentiment started to turn lower early in Europe and accelerated in NY, leaving most risk markets weaker. The S&P500 is currently 1.5% lower, the Eurostoxx closing down 1.2%. Eurozone contagion was probably a factor, as well as a US insider trading case developing. Moody's rating agency said a significant increase in Ireland's debt burden resulting from the bailout would likely require a multi-notch downgrade. Ireland's political backdrop was also unhelpful, the Labour opposition calling for the dissolution of Parliament and elections, and the Green Party saying it would withdraw from the coalition. Still, Irish 10yr government bonds were well behaved, outperforming German equivalents by 3bp. The focus seemed to have shifted instead to Greece, its 10yr gaining 24bp to 11.80% - around September's peak. Commodities continued the two-week long decline, the CRB down 0.7%, oil -1.2%, copper -2.1%, cotton -4.3%, but gold holding (+0.3%). US 10yr treasury yields fell as much as 7bp to 2.80%, currently at 2.83%. The 2yr auction was healthy at 0.52% yield and decent a 3.7 bid-cover ratio.
The US dollar turned higher with equities and formed a key reversal day. EUR fell from its opening peak of 1.3786 to 1.3579 despite official attempts to stem contagion - the EU's Rehn said Portugal was very different to Ireland. Defensive yen outperformed, USD/JPY holding in a narrow 83.35-83.55 range.
AUD fell from a European peak of 0.9955 to 0.9823 an hour ago.
NZD unsurprisingly was underperformer of the day in the wake of the S&P outlook revision, although there was no further fallout after Sydney closed. Perversely, it rose from 0.7718 to 0.7783 during the European morning and then slipped with global sentiment to 0.7694. AUD/NZD declined gradually from 1.2855 to 1.2750.
US Chicago Fed national activity index improved in October, rising from a upwardly revised -0.52 (previously -0.58) to -0.28. The improvements were led by production and employment related indicators, although these gains were partially offset by small declines in consumption and housing related indicators. At current levels the index still points to below-trend economic activity.
Eurozone consumer confidence lifted from -11 to -9.5 in October, beating expectations and reaching the highest level since late 2007. The lift in confidence was reasonably widespread, with the biggest gains in France and the Netherlands.
AUD/USD and NZD/USD outlook next 24 hours: AUD is poised to test 0.9810 below, a break then pointing to 0.9725. The S&P surprise has turned the immediate (and possibly multi-day) outlook for NZD to bearish, a break below 0.7700 then targeting 0.7640. Note also the bearish key reversal.
.Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 19 November 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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