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Tuesday September 21, 2004 - 07:31:54 GMT
Saxo Bank - www.global-view.com/saxo_bank/

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Forex Trading Strategies by Robert P. Balan at Saxo Bank

USD/CAD may rally back to 1.3040 post Fed rate hike (if any); but look for decline to 1.2860 thereafter

Bank of Canada Governor David Dodge said the central bank is planning more interest-rate increases in order to harness economic growth that's close to sparking faster inflation.




DEVELOPMENTS TO WATCH TODAY: Sept 21 - Europe



- The Federal Reserve may signal today whether this year's 43 percent jump in oil prices poses enough of a threat to steer policy makers away from their plan for ``measured'' interest-rate increases. The Fed's Open Market Committee will raise the overnight bank lending rate today by a quarter-point to 1.75 percent, according to economists at Wall Street's biggest bond firms. Forecasters said they'll look for signs about whether the Fed will hold rates steady in either November or December, as 15 of the so-called primary dealers predicted last week. Chairman Alan Greenspan calls the higher oil prices a ``tax'' that may suppress growth without spreading to other goods and services. That argues for a possible pause, said economists. A counterpoint raised last week by Fed Governor Edward Gramlich said it may be better to err on the side of raising rates, even if it costs jobs, because higher inflation always follows a sustained jump in oil prices.


- Japan's trade surplus probably narrowed in August because manufacturers imported more machinery and equipment as they geared up to increase production, economists said ahead of a government report. The surplus probably fell to 914.8 billion yen ($8.3 billion), seasonally adjusted, from 974.2 billion yen in July, according to the median forecast of economists. The Ministry of Finance will release its report at 8:50 a.m. tomorrow. Manufacturers including Elpida Memory Inc. and Canon Inc. are spending more on machinery to meet rising demand for semiconductors and digital cameras. Capital spending by companies rose 10.7 percent in the second quarter, the fifth straight gain, a government survey showed this month.


- U.K. house prices probably fell for the first time in more than a year in August, the Royal Institution of Chartered Surveyors said, adding to evidence that five interest rate increases since November are cooling the housing market. The net balance of property appraisers reporting a rise in house prices from a year ago, minus those identifying a drop, fell to minus 13 percent in August after a reading for July that was little changed and plus 24 percent in June. It was the lowest reading since June 2003. The Bank of England has raised its key interest rate to close to a three-year high in an attempt to slow house-price increases and damp consumer borrowing which in June topped 1 trillion pounds for the first time. Last week, Bank of England policy maker Stephen Nickell said the housing market seems to be slowing and interest rates may not need to rise much further.


- Bank of Canada Governor David Dodge said the central bank is planning more interest-rate increases in order to harness economic growth that's close to sparking faster inflation. "We will need to continue to reduce monetary stimulus to avoid a buildup of inflationary pressures,'' Dodge said in a speech in Calgary. ``The pace of our actions will depend on our continuing assessment of evolving prospects for pressures on capacity and inflation.'' The central bank used similar language to explain why it lifted borrowing costs for the first time in 17 months on Sept. 8, and in an August speech by one of Dodge's deputies that presaged the increase. The quarter-point boost took the Bank of Canada's benchmark rate to 2.25 percent from a four-decade low. Canada's economy, the world's eight-largest, expanded at an annual rate of 4.3 percent in the second quarter, the fastest in two years, and 3 percent in the January-March period. Policy makers reckon the economy can handle 3 percent growth without stoking inflation past their target of 2 percent.


- European Central Bank council members Otmar Issing and Axel Weber said they expect inflation to slow below the bank's 2 percent ceiling and that the euro-region's economic recovery is on track. Higher oil prices have pushed inflation above the ECB's ceiling for the past four months and weighed on a global economic recovery. Goldman Sachs Group Inc. today cut its euro-region growth forecast and Unilever, the maker of Lipton tea and Magnum ice cream bars, cut its annual profit forecast. Investors are raising their expectations that the ECB will lift its benchmark rate from its current level of 2 percent as inflation picks up, futures trading suggests. The yield on the March contract on Europe's three-month Euribor rate was at 2.42 percent today compared with 2.3 percent a month ago.


- Crude oil in New York was little changed near a four-week high as OAO Yukos Oil Co. said it will halt shipments to China's biggest oil company after its bank accounts were frozen in a tax dispute with the Russian government. Yukos yesterday said it will end shipments by rail of about 95,000 barrels a day to China National Petroleum Corp. on Sept. 28, the first cut by Russia's largest oil exporter since the government started procedures to collect $7.5 billion in taxes and penalties. Surging demand in China and supply disruptions in OPEC nations have reduced spare output capacity. Crude oil for October delivery traded at $46.30 a barrel, down 5 cents, in after-hours electronic trading on the New York Mercantile Exchange at 12:18 p.m. Singapore time. Earlier, prices rose as much as 23 cents, or 0.5 percent. Yesterday, oil rose 76 cents to close $46.35 a barrel, the highest since Aug. 20. Prices, which rose almost $3 a barrel last week after Hurricane Ivan forced closures of U.S. oil platforms, are 72 percent higher than a year ago.



FX Market Summary -


The dollar may rise for a third day against the yen on speculation Federal Reserve policy makers will raise the key interest rate in a meeting today and say they will maintain a ``measured'' pace of increases. The U.S. currency gained 2.6 percent against the yen this year and 3.5 percent versus the euro as the Fed is the only one of the three major central banks lifting interest rates. Policy makers will increase the target for overnight loans between banks to 1.75 percent, according to economists. Against the yen, the dollar traded at 110.06 at 12:11 p.m. in Tokyo from 109.90 late yesterday in New York. The U.S. currency also traded at $1.2173 per euro from $1.2176.

Australia's dollar advanced after a fall in U.S. Treasury yields boosted the appeal of holding higher- yielding local government bonds and the currency. The currency also gained after oil prices rose to a four- week high, increasing speculation what Federal Reserve Chairman Alan Greenspan last month called a ``soft patch'' in the U.S. economy may continue. The concern prompted a decline in U.S. Treasury yields that was not matched by Australian bonds. Australia's currency rose to 69.97 U.S. cents at 1:09 p.m. in Sydney from 69.86 cents in late Asian trading yesterday. The currency gained for the past two weeks. It averaged 72.53 in the past year.

The New Zealand dollar gained as economic reports this week encourage the central bank to raise rates a sixth time this year, widening the gap between the nation's borrowing costs and those of the U.S. New Zealand's central bank will raise its benchmark interest rate to a four-year high of 6.5 percent next month, according to economists. A report Friday will probably show the nation's economy expanded at the fastest annual pace in four years in the second quarter. The local currency bought 66.12 U.S. cents at 1:41 p.m. in Wellington, from 65.97 cents in late Asian trading yesterday. The New Zealand dollar has gained for the past two weeks.

Monday's summary: the dollar finished slightly higher against the majors. The greenback added 0.2% versus the euro and gained 0.1% against the yen. The main European currencies have broadly weakened vis-ŗ-vis the U.S. dollar, in the absence of any major data releases and in advance of the Fed deliberations on Tuesday. The widely-anticipated hike is proving greenback-supportive. The euro slid 0.2% today to trade recently around 1.2170. Sterling again found itself under pressure, this time following the release of mortgage lending data, which further underlines the turn of the housing market. The pound slid 0.3% vis-ŗ-vis the single European currency, to around 0.6820, and 0.4% against the dollar, to 1.7860.



Forex Technicals:


- EUR/USD - the currency pair recovered somewhat after seeing chart support at 1.2125. It may yet rise towards 1.2220, but this is inconsequential in the face of the FOMC meeting set today. Nonetheless, a small uptick to test the 1.2270 swing level does not seem likely from here (1.2176) in the light of an almost certain bumping up of rates by another 25 basis points. The response to a rate hike may be mild however, as it has been telegraphed for several weeks now. This development really forces us to pay attention to one of the possibilities we were tracking, which is a large, multi-month triangle which commenced in June. A final downmove to 1.2050 area is needed to complete the pattern, so until such time that this particular route is discredited, we hesitate to jump into a bullish mode without giving it a chance to play out. A Fed bump up of rates 25 basis points today may well cause the single currency to fall to the mid- to low 1.2000s. it may find demand at those lower levels however.

The slightly longer-term outlook is different however. We favor the outlook which eventually leads to a break of 1.2310, at which point the bias to the upside becomes virtually certain. And on a larger overview, we still maintain that there is no real reason for bulls to celebrate until 1.2530 hypothetical resistance is taken out. This level is shaping up to be the major resistance in the current investment cycle. Take out 1,2530 top in turn, and you get a run-up to the 1.2925 high before year-end.


- GBP/USD - the currency pair recovers somewhat after support was found at 1.7815. However, it may be limited to 1.7900 - 1.7910. Tuesday's FOMC meeting has to be factored in place. A 25 basis point hike by the Fed may cause further decline to 1.7720. The technical conditions remain the same. On the positive side, a break of 1.8030 top triggers a new series of advances -- there is no barrier between 1.8030 and 1.8500. Fundamentals keep getting in the way however. U.K. house prices probably fell for the first time in more than a year in August, the Royal Institution of Chartered Surveyors said today, adding to evidence that five interest rate increases since November are cooling the housing market. And therefore interest rates may not need to rise much further -- which of course weakens the GBP in the FX markets.


- USD/JPY - a volatile flip-flop in price continues. This is the general expectation if the triangle pattern we spoke about earlier is indeed operative, which limits the upmove to 110.40. We will take a chance that the pattern will soon be completed, and so we expect the currency pair to break through the 109.40 support thereafter, and initiate a new series of declines to the downside, which first targets the downside base at 108.75, then breaches support to bring about 107.00 quickly.


- USD/CHF - there may be a small downtick to 1.2680 area, but the rally may indeed be going further towards 1.2800 - 1.2850 resistance area, post the FOMC meeting Tuesday. The downtrend resumes thereafter, and may be bound for 1.2380 next. Expect further declines to 1.2200 further out.


- USD/CAD -- The currency pair fell to 1.2925, and consolidates somewhat, but the momentum of the descent suggests that it might head further towards 1.2860. And from there, it should test the 1.2685 trough.


- AUD/USD - support may firm at .6950 - 1.6940 after the Fed hike, but assume further upmove to .7040 thereafter. The outlook becomes significantly more positive once .7050 resistance is taken out. A rally towards .7100 - .7130 is still expected to take place thereafter.


- NZD/USD - the currency prepares for the Fed rate hike -- support should firm up at .6550. The currency however should accelerate higher thereafter. The wide U.S. current account/trade gap, and the outlook of further RBNZ tightening, should continue to underpin the rally as the dollar runs out of steam. The uptrend should be reaffirmed shortly -- the Kiwi should eventually make a move towards the .6750 top, then extend gains towards the .7100 high for the year. If you have to pick a medium-term bet, long Kiwi should be a good candidate from both technical and fundamental perspective.


- EUR/JPY - the cross did find support at 133.20. The cross should continue to rally from here (134.03) -- the next major focus being the 137.00 - 138.00 major resistance.


- EUR/CHF - the cross broke above 1.5483 resistance, and has been to 1.5500, which should be taken out momentarily. The cross should continue the upwards course and push through to 1.5550 and higher -- perhaps to 1.5600.


- EUR/GBP - the cross may have indeed found lasting support at .6780 -- further decline to .6770 - .6760 may not happen. The uptrend resumes thereafter and should eventually push through .6856, which may trigger a rally to .7000.


- GBP/JPY - the uptrend did correct , found support near 195.75. It should make a go at 198.65 top thereafter, then make a beeline for the 205.00 target.


- GBP/CHF - the cross consolidates after it broke through the 2.2700 resistance, but may be set for a new breakout once support at 2.2700 is confirmed. Resistance effectively reside at just below 2.2800, and if taken out, we reinstate a 2.3000 target.






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DEVELOPMENTS TO WATCH TODAY: Sept 20 - New York



- U.K. mortgage lending rose at the slowest pace in more than two years in August, the British Bankers' Association said, adding to signs that five interest rate increases since November are cooling the housing market. Net mortgage lending climbed by 4.4 billion pounds, less than July's 5.1 billion-pound increase and the smallest since June 2002. Including loans by Building Societies, gross mortgage lending slowed to 25 billion pounds in August from 28.9 billion the month before, the Council of Mortgage Lenders said in a separate report. The figures may signal that five interest rate increases by the Bank of England since November are beginning to slow consumers' appetite to borrow and spend. Last week, Monetary Policy Committee member Stephen Nickell said interest rates may not need to rise much higher now that the housing market is beginning to ease. Total sterling lending rose 13.6 billion pounds ($24 billion) last month, after an 10.8 billion-pound gain in July, following increased lending to non-financial companies, the BBA said.


- Crude futures rose to a four-week high after OAO Yukos Oil Co. said it will halt shipments to China's biggest oil company, the first time a tax dispute has disrupted exports from Russia, the world's largest oil producer. Yukos will end supplies to China National Petroleum Corp. of about 95,000 barrels a day tomorrow, Yukos's China representative said. Russia froze the company's bank accounts amid demands for billions of dollars in back taxes, leading Yukos to warn it might cut exports at least six times since July. Yukos can't pay railway bills and European buyers may also face cuts. Crude oil for October delivery jumped as much as 1.7 percent to $46.35 a barrel, its highest since Aug. 23, and was up 35 cents at $45.94 in electronic trading on the New York Mercantile Exchange at 12:22 p.m. London time. It has gained 41 percent this year. Brent crude for November settlement rose 21 cents to $42.66 a barrel on London's International Petroleum Exchange.


- Australia, the world's biggest coal supplier, raised its forecast for commodity exports for a second time as soaring Chinese demand and rising oil prices boost energy sales 38 percent. Sales abroad of commodities from alumina to zinc will rise 16 percent to a record A$95.7 billion ($67 billion) in the 12 months ending June 30, 2005, the Australian Bureau of Agricultural & Resource Economics said. That's 2.5 percent more than the Canberra-based bureau's June forecast. Soaring prices are underpinning A$11.1 billion of new oil fields and coal mines being developed in Australia by BHP Billiton, Woodside Petroleum Ltd. and rivals. Higher commodity sales may help narrow Australia's trade deficit, which widened to A$2.75 billion in July, the second highest ever.


- Wall Street firms probably will say profits declined in the latest quarter, the first drop in two years, as stock trading and bond underwriting fell. Morgan Stanley, Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Bear Stearns Cos. may this week report combined fiscal third-quarter profits of $2.56 billion, down 6 percent from a year ago, according to estimates from more than 10 analysts surveyed by Thomson Financial. That compares with a record $3.37 billion the four New York-based firms made in the second quarter. The industry's revenue was hurt as the Federal Reserve started to raise interest rates in June for the first time in four years, said Michael Vogelzang, who oversees $2.6 billion as chief investment officer at Boston Advisors Inc. Trading on the New York Stock Exchange was the slowest in more than two years in August. Fees from managing bond sales fell about 30 percent in the three months ended Aug. 31 from a year ago.



FX Market Summary -


The U.S. dollar has been gaining strength in early trading ahead of the FOMC meeting tomorrow.

The FOMC is expected to raise interest rates by 25 basis point and to continue its measured pace of tightening thereafter. The U.S. dollar is also enjoying support from favorable market expectations regarding the durable goods orders and construction reports due later this week. Investors anticipate these releases to confirm that the economic expansion in the U.S. is continuing on firm ground. Indeed, markets are expecting theses releases to validate the Fedís assessment that the economy is regaining traction after hitting a soft spot earlier.

The euro has been suffering after regional elections in Germany saw growing support for extremist parties on the left and right. In state elections in the eastern states of Saxony and Brandenburg the ex-communist and right-wing anti-immigration parties received around one third of the popular vote. In contrast, the ruling Social Democrats of Chancellor Gerhard Schroeder recorded their worst result in any state election since the end of World War II in Saxony . The election results will have no effect on the federal government in Berlin , but the strengthening of extremist parties is nevertheless worrisome. Markets are fearful that investors, turned off by political instability, and the anti-market attitude of the extremists on the left and right, will avoid projects in the former communist East Germany .

Moreover, the defeat of the governing Social Democrats shows how unpopular the governmentís modest reform agenda is particularly in the East. This bodes ill for the prospect of much needed further reform. The euro was fetching 1.2130 a few moments ago, down 0.57 cents from Friday. The euro also lost ground to the Japanese yen in thin trading as today is a public holiday in Japan .

The British pound gave some ground against major currencies after reports showed that the U.K. housing market continues to slow. The slower housing market is likely to bring about a more wide spread slowing of economic activity as consumers will eventually lack the means to maintain elevated spending. More immediately, the slowing housing markets makes it more unlikely that the Bank of England will raise interest rates soon. Thus, the rate differential with the U.S. dollar will continue to narrow. Arguably, the Bank of Englandís early tightening has postponed the need for a sixth rate hike since November. Sterling was trading at US$1.784 and was fetching 1.47 euro a few moments ago.


The dollar rose against the euro for the first day in three on expectations the Federal Reserve will lift its key interest rate tomorrow and signal it plans more increases. The U.S. currency has gained 3.7 percent this year versus the euro as policy makers raised the overnight lending rate among banks twice, to 1.5 percent from a four-decade low of 1 percent. The Fed will probably increase the rate to 1.75 percent tomorrow, according to 21 of the 22 biggest bond-trading firms.



Forex Technicals:


- EUR/USD - the currency pair trades lower, as the market awaits the culmination of the FOMC meeting tomorrow. And a small uptick to test the 1.2270 swing level does not seem likely from here (1.2138). This development really forces us to pay attention to one of the possibilities we were tracking, which is a large, multi-month triangle which commenced in June. A final downmove to 1.2050 area is needed to complete the pattern, and that is why we hesitate to jump into a bullish mode without tracing out the chances of a downtick happening. This view also hews close to the scenario that the Fed will bump up rates 25 basis points Tuesday -- which may well cause the single currency to fall to the mid- to low 1.2000s. The best way to handle this situation is to put in markers to guide us in the decision-making process. Any rally above 1.2270 makes it unlikely that a final downleg to 1.2030 - 1.2020 will happen. On the other hand, any sell-off which takes out 1.2140 highly suggests that such a move to 1.2030 - 1.2020 will likely take place.

The slightly longer-term outlook is different however. We favor the outlook which eventually leads to a break of 1.2310, at which point the bias to the upside becomes virtually certain. And on a larger overview, we still maintain that there is no real reason for bulls to celebrate until 1.2530 hypothetical resistance is taken out. This level is shaping up to be the major resistance in the current investment cycle. Take out 1,2530 top in turn, and you get a run-up to the 1.2925 high before year-end.


- GBP/USD - the currency pair is pulling back somewhat after the U.K. housing market continues to slow. The slower housing market is likely to bring about a more wide spread slowing of economic activity as consumers will eventually lack the means to maintain elevated spending. The technical conditions remain the same. On the positive side, a break of 1.8030 top triggers a new series of advances -- there is no barrier between 1.8030 and 1.8500. On the negative side, fundamentals have not really been hot; moreover, Tuesday's FOMC meeting has to be factored in place. A 25 basis point hike by the Fed may cause further decline to 1.7600.


- USD/JPY - no change in view -- a small rally back to 110.30 was followed by a volatile flip-flop in price. This is the general expectation if the triangle pattern we spoke about earlier has not been completed at the most recent sojourn to 110.40. We will take a chance that the pattern is complete, or soon to be completed anyway, and so we expect the currency pair to break through the 109.40 support thereafter, and initiate a new series of declines to the downside, which first targets the downside base at 108.75, then breaches support to bring about 107.00 quickly.


- USD/CHF - the rally may indeed be going further towards 1.2800 - 1.2850 resistance area, post the FOMC meeting Tuesday. The downtrend resumes thereafter, and may be bound for 1.2380 next. Expect further declines to 1.2200 further out.


- USD/CAD -- no change in view -- the currency pair rose after Canadian inflation slowed more than expected in August to 1.9 percent from a year ago, then fell. The currency pair is back at 1.2996, and the momentum of the descent suggests that it might head for 1.2860. And from there, it should test the 1.2685 trough.


- AUD/USD - support may firm at .6950 - 1.6940, but assume further upmove to .7040 thereafter. This in turn may be followed by another sell-off to .6950. The outlook becomes significantly more positive once .7050 resistance is taken out. A rally towards .7100 - .7130 is still expected to take place thereafter.


- NZD/USD - the currency prepares for a test of the .6640 top -- this assumes that support firms up at .6550. The currency however should accelerate higher thereafter. The wide U.S. current account/trade gap, and the outlook of further RBNZ tightening, should continue to underpin the rally as the dollar runs out of steam. The uptrend should be reaffirmed shortly -- the Kiwi should eventually make a move towards the .6750 top, then extend gains towards the .7100 high for the year. If you have to pick a medium-term bet, long Kiwi should be a good candidate from both technical and fundamental perspective.


- EUR/JPY - the cross indeed fell, and may find support at 133.20. However, the cross should continue to rally from there -- the next major focus being the 137.00 - 138.00 major resistance.


- EUR/CHF - the cross broke above 1.5483 resisatnce, and should continue the upwards course. The cross should then push through to1.5550 and higher -- perhaps to 1.5600.


- EUR/GBP - no change in view -- the cross found support at .6780, but allow for further decline to .6770 - .6760. Nonetheless, the uptrend resumes thereafter and should eventually push through .6856, which may trigger a rally to .7000.


- GBP/JPY - the uptrend did correct , but has been lower, and may find support near 196.80. It should make a go at 198.65 top thereafter, then make a beeline for the 205.00 target.


- GBP/CHF - the cross consolidates after it broke through the 2.2700 resistance, but may be set for a new breakout; we might see the rally extending further from here (2.2759). Resistance effectively reside at just below 2.2800, and if taken out, we reinstate a 2.3000 target.






=============================================



DEVELOPMENTS TO WATCH TODAY: Sept 20 - Europe



- Earnings growth at Europe's largest companies may slow this quarter as the highest unemployment in five years hobbles consumer spending and oil-price gains threaten growth in the region's biggest export markets. Third-quarter earnings at Dow Jones Stoxx 600 Index companies will increase an average 21 percent from the same period last year, slowing from an average 27 percent gain in the second quarter, said JCF Group, which is based in London and Paris and compiles European analyst surveys. Europe's 9 percent jobless rate coincides with what BP Plc Chief Executive John Browne Friday called the end of the era of cheap oil. After a quarter when two-thirds of Stoxx 50 members, including L'Oreal SA, beat estimates, shoppers are scaling back just as oil prices inflate costs. The last Stoxx 50 member to report for the most recent period will be Tesco Plc tomorrow.


- French household spending probably rose in August and consumer confidence may have advanced in Italy to its highest level this year as higher exports boosted demand, surveys of economists showed. French consumer spending probably rose 0.3 percent last month, according to the median estimates of economists. An Italian confidence index likely advanced to 102 from 101.7 in August, the median of 20 forecasts showed. France's statistics office in Paris and the Rome-based Isae Institute publish their reports on Wednesday. Spending by consumers in France may have peaked as unemployment remains near a 2 1/2-year high and demand in Germany, its biggest export market slumps. Purchases probably dropped 2.2 percent in July after a June surge, the survey showed. In Italy, the government last week reported increased industrial production, suggesting the economy may be picking up.


- OAO Yukos Oil Co., Russia's biggest oil exporter, will lower crude-oil deliveries to China National Petroleum Corp. this month and supply no oil in October because the Russian company can't pay for transportation, said Sergei Prisyazhniuk, Yukos's chief China representative. Yukos, which earlier agreed to supply 400,000 metric tons a month, will cut deliveries by 150,000 tons, or 38 percent, this month, Prisyazhniuk said. Plans for November shipments haven't been concluded, he said. European customers who receive crude oil via railway may also face cuts in supply, he said, declining to give any more details. Yukos' shipments of 250,000 tons a month to China Petrochemical Corp. won't be affected, he added.


- U.K. house prices were virtually unchanged in the four weeks ended Sept. 11, property Web site Rightmove reported, reinforcing evidence that five interest-rate increases since November are capping home-price inflation. The average asking price for a home was 192,316 pounds ($345,418) in the period, about the same as in the previous four weeks and following a 2 percent decline in the period ended mid- August, Rightmove said. Average prices have risen 16 percent over the past 12 months. Over the four-week period, prices fell in western regions of Britain and greater London, where prices fell 0.7 percent, while gains occurred in the north, east and south, Rightmove said. The biggest climb was in the East Midlands region, where prices advanced 1.5 percent.


- Crude oil futures rose, extending Friday's 3.9 percent gain, because of concern refinery and production shutdowns caused by Hurricane Ivan will reduce U.S. fuel supplies. Ivan, which struck Alabama on Thursday, cut U.S. oil output by at least 5.1 million barrels last week, government figures showed. While the storm missed Louisiana's drilling platforms and refineries, many were shut for safety reasons. The Louisiana Offshore Oil Port, the biggest U.S. crude-oil import terminal, was closed last week because of the storm. Crude oil for October delivery rose 30 cents, or 0.7 percent, to $45.89 a barrel in after-hours electronic trading on the New York Mercantile Exchange at 11:51 a.m. Singapore time.






FX Market Summary -



The dollar rose against the yen and the euro in Asia on expectations the Federal Reserve will lift interest rates tomorrow and signal it plans further increases. The U.S. currency appreciated 3.5 percent this year versus the euro and 2.6 percent against the yen as Fed policy makers raised the overnight lending rate among banks twice to 1.5 percent from a four-decade low of 1 percent. Reports on orders for business equipment and home construction this week will probably provide evidence the U.S. economy is gaining strength. Against the yen, the dollar rose to 110.02 at 1:05 p.m. in Tokyo, from 109.82 late Friday in New York. It also gained to $1.2170 per euro, from $1.2187.

Friday' summary: The dollar had a solid day. The greenback added nearly 0.6% vs. the Canadian dollar, rose 0.3% vs. the Japanese yen and gained 0.1% against the euro. The U.S. dollar has regained some lost ground against the euro, to trade recently around 1.2170. Sterling started out the week under pressure as investors unwound expectations of any further interest rates hikes from the Bank of England. The vibrant August retails sales data triggered a rebound on Thursday, lifting the pound off its lows. As a result, sterling recently fetched 1.7910, down 0.3% on the week, while the pound was trading around 0.679 to the euro, down 0.4%.






Forex Technicals:


- EUR/USD - the currency pair remains below the crucial 1.2270 swing level -- a test of which the single currency may be still set to do. Until then, we have to pay attention to one of the possibilities we were tracking, which is a large, multi-month triangle which commenced in June. A final downmove to 1.2050 area is needed to complete the pattern, and that is why we hesitate to jump into a bullish mode without tracing out the chances of a downtick happening. This view also hews close to the scenario that the Fed will bump up rates Tuesday -- which may well cause the single currency to fall to the mid- to low 1.2000s. The best way to handle this situation is to put in markers to guide us in the decision-making process. Any rally above 1.2270 makes it unlikely that a final downleg to 1.2050 - 1.2020 will happen. On the other hand, any sell-off which takes out 1.2140 highly suggests that such a move to 1.2050 - 1.2020 will likely take place.

The slightly longer-term outlook is different however. We favor the outlook which eventually leads to a break of 1.2310, at which point the bias to the upside becomes virtually certain. And on a larger overview, we still maintain that there is no real reason for bulls to celebrate until 1.2530 hypothetical resistance is taken out. This level is shaping up to be the major resistance in the current investment cycle. Take out 1,2530 top in turn, and you get a run-up to the 1.2925 high before year-end.


- GBP/USD - the currency pair is pulling back somewhat after a recovery initiated after U.K. retail sales rose 0.6%(m/m) in August, and bested expectations for a 0.4% fall. The technical conditions remain the same -- a break of 1.8030 top triggers a new series of advances -- there is no barrier between 1.8030 and 1.8500. We may yet see a follow-through to 1.8030, but a sell-off after Tuesday's FOMC meeting has to be factored in place.


- USD/JPY - a small rally back to 110.30 was followed by a volatile flip-flop in price. This is the general expectation if the triangle pattern we spoke about earlier has not been completed at the most recent sojourn to 110.40. We will take a chance that the pattern is complete, or soon to be completed anyway, and so we expect the currency pair to break through the 109.40 support thereafter, and initiate a new series of declines to the downside, which first targets the downside base at 108.75, then breaches support to bring about 107.00 quickly.


- USD/CHF - there is still a chance that the rally may go further towards 1.2800 - 1.2850 resistance area, post the FOMC meeting Tuesday. The downtrend resumes thereafter, and may be bound for 1.2380 next. Expect further declines to 1.2200 further out.


- USD/CAD -- the currency pair rose after Canadian inflation slowed more than expected in August to 1.9 percent from a year ago, then fell.
The currency pair is back at 1.2996, and the momentum of the descent suggests that it might head for 1.2860. And from there, it should test the 1.2685 trough.


- AUD/USD - support may firm at .6960, and assume further upmove to .7040, but this may be followed by another sell-off to .6950. The outlook becomes significantly more positive once .7050 resistance is taken out. A rally towards .7100 - .7130 is still expected to take place thereafter.


- NZD/USD - the currency prepares for a test of the .6640 top. The currency however stands a good chance of doing another correction to .6560. but should accelerate higher thereafter as a consquence of a break through the high. The wide U.S. current account/trade gap, and the outlook of further RBNZ tightening, should continue to underpin the rally as the dollar runs out of steam. The uptrend should be reaffirmed shortly -- the Kiwi should eventually make a move towards the .6750 top, then extend gains towards the .7100 high for the year. If you have to pick a medium-term bet, long Kiwi should be a good candidate from both technical and fundamental perspective.


- EUR/JPY - the cross has been to 134.50, but may correct to 133.40. However, the cross should continue to rally fromt here -- the next major focus being the 137.00 - 138.00 major resistance.


- EUR/CHF - no change in view -- the cross has been to 1.5483, and should continue the upwards course. The cross should then push through to1.5550 and higher -- perhaps to 1.5600.


- EUR/GBP - no change in view -- the cross found support at .6780, but allow for further decline to .6770 - .6760. Nonetheless, the uptrend resumes thereafter and should eventually push through .6856, which may trigger a rally to .7000.


- GBP/JPY - the uptrend is back on track, may correct to 196.50 however, and should make a go at 198.65 top, then make a beeline for the 205.00 target.


- GBP/CHF - the cross still consolidates after it broke through the 2.2700 resistance; we might see the rally extending further from here (2.2765). Resistance effectively reside at just below 2.2800, and if taken out, we reinstate a 2.3000 target.





News, data, references and commentaries compiled from Bloomberg, Reuters, Financial Times, Wall Street Journal, Dow-Jones, CBSMarketWatch, Briefing.com, and Economy.com



Saxo Bank A/S accepts no responsibility for the accuracy or completeness of any information here in contained nor for any forecasts or recommendations. Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Saxo Bank that you will profit from the strategies herein or that your losses in connection therewith can or will be limited. Stops may not necessarily limit losses to intended levels. Please read the full disclaimer at http://www.saxobank.com/?id=193&Lan=DA&Au=2&Grp=6

 

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