Wednesday December 8, 2010 - 03:45:00 GMT
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Morning Briefing : 08-Dec-2010 -0339 GMT
US markets tumbled after intial gain due to sell-off in commodities and strength in the dollar. Dow closed at 11 359, down 0.03% and S&P 500 closed at 1224, up 0.05%. Dow saw selling around its Novemeber highs of 11,451 and as a result charts smack evidence of double top. However, immediate support is around 11,200 and only a close below 10,900 will flip the bias to bearish.
Asian indicies are mostly in the red barring Nikkei (10,211 up 0.69%). Hangseng ( 23,270) is down 0.67%, Shanghai (3006) down 0.19% and Kospi (1962) is down 0.03%. Yesterday Nifty saw ranged trading and closed at 5976, down 0.26%. We expect a range of 5900-6050 to unfold and a close below 5900 would flip the bias to bearish.
Crude (88.04) fell sharply yesterday from the high of 90.76. Stronger dollar and profit taking triggered the fall yesterday. Technically, failure to sustain the break above 89.99 [50% retracement level of the fall from 147.27 (Jul-08) to 32.70 (Jan-09)] has now increased the chances of a dip towards 87-85 as we had mentioned yesterday. The US Crude inventory data release is due today.
Gold (1397.90) has come off sharply from the high of 1431.40 on profit taking and is now trading below 1400. Support is seen at 1380 which might be tested today. 1350 is the next significant Support seen below 1380.
Silver, Spot (28.65), tanked yesterday from the high of 30.68 breaking below the Support in 29.50-30 region mentioned earlier. Technically the Trendline Resistance at 30.35 is holding as of now. Support is seen in 28.00-27.50 region which might be tested today while below 29.00.
Recovery in the Dollar over the last couple of days. The Dollar Index (79.31) has held above its important Support at 79.05-35 and has moved up. A rise past 80.00 on a Day Close basis would put it on firmer ground. The Euro (1.3227) has fallen sharply from the high of 1.34 seen yesterday. Price action so far in December suggests that (A) the November rally in the Dollar might not be entirely false and (B) the next couple of weeks should see the markets tread water rather than establish new trends. The fall in Gold and Silver yesterday is an important development to watch, as it is supportive of the Dollar on the margin.
Dollar-Yen (83.71) and Dollar-Swiss (0.9888) have both zoomed yesterday, coming up from lows of 82.34 and 0.9757 respectively. Further rise seems possible for the Dollar this week.
The Pound (1.5732) has also dipped from yesterday's high near 1.5822, but is diplaying more strength than the Euro, Swissy and Yen. A very sharp fall has been seen in the Aussie (0.9814) from yesterday's high near 0.9965. It has broken a crucial intra-day support (0.9829) today and can fall further. The Aussie-Yen Cross (82.08) is moving largely sideways within a mild uptrend. This is an important pair to watch going forward as a range breakout is imminent in Jan-11.
The Asian currencies are trading weaker today, especially the Sing Dollar. The USD-SGD (1.3133) has moved up from the low near 1.3003-13 seen over the last few days and a further rise towards 1.3190 looks possible. Dollar-Won (1137.80) has also moved up from yesterday's low near 1128.45, but faces a Resistance at the current level. Dollar-Rupee, which had closed at 44.64 yesterday has a credible Support at 44.50. A fall below seems unlikely. Rather there are chances of a rise today, given the fall in the Euro overnight.
The 3M USD LIBOR was unchanged at 0.30%. The 2Y (0.53% up 11 bps) and 10Y (3.16 up 24 bps) US Treasury yields have seen the biggest one day jump in yields since 2009. Demand for 3 year debt was not enouraging as the The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.91, the lowest level since February, when it was 2.83.
A combination of weak bond auction, fear that extension of tax cuts would add more to the Federal deficit and weakness on charts has triggered a sell-off in the US treasuries. Market would be eyeing the auction of the 10 year and 30 year bonds slated for this week to gauge the appetite for treasuries. Accorging to a bloomberg report, study shows stress in the EU banking system has reached a highest level since June of this year due to soverign default risk increasing substantailly in EU. The risk apprehension is not just limited sovereign as the markets fears collateral adamage to financial sector in EU as their are the holders of the stressed debt. As a result the spreads between their cost of debt for EU banks and soverign is increasing in Europe and has reached levels which can be seen for the banks in US. back home in India 10 year goverment bond yield (8.08 down 13 bps) declined sharply on the back of news that Goverment would reduce the Auction size of its debt and also go for a buy back of bonds through open market operation to inject liquidity in the system. Indian yield curve has become inverted due to liquidity crunch in the banking system and with Rs 50K crore of advance tax outflows in a couple of weeks and 100K crore of CD redemption by end of this month the situation is expected to worsen.
No major data release today
AUD RBA Interest Rate
Actual... 4.75%...Previous 4.75%
Actual... 1.00%...Previous 1.00%
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