Mid-Day Report: Euro Weakens, Dollar and Sterling Rebounds to Close the Year

First of all, wish our readers happy and prosperous 2009!

Just after we mentioned the possibility of reversal in Euro yesterday, selling of the common currency intensifies in thin holiday trading on New Year’s Eve. Most importantly, EUR/GBP dropped over 300 pts to to as low as 0.9473 in early US session. Bearish divergence condition in 4 hours MACD and RSI argues that a short term top is formed at 0.9799 and more weakness will likely be seen, probably to retest 0.9 psychological level. EUR/USD is back below 1.39 and is set to test key near term cluster support at 1.3629. EUR/CAD will probably test double top neckline support at 1.6750 too. Note that Euro’s rally in Dec is partly fueled by speculations that ECB will pause rate cut in early Jan but markets are getting doubtful on such expectations as outlook of the Eurozone economy is getting worse. Some more profit taking on Euro longs could be seen leading to to ECB meeting on Jan 15. Read the rest of this entry »

Daily Forex Report: BoJ Cuts 20bps, Has Euro Topped?
By ActionForex

The forex markets are rather steady today so far as little response is paid to BoJ’s rate cut. the Bank of Japan cut the overnight lending rate from 0.3% to 0.1% on 7-1 vote and announced plan to buy corporate debts to help corporate raise funds during deepening recession. Tado Noda was the sole member to dissent. Basic loan rate was also lowered by 20bps to 0.3% by unanimous vote. Yen remains mixed after the decision. Note that firstly, more upside cannot be ruled out in EUR/JPY and CHF/JPY as supported by the theme of intervention. Secondly, USD/JPY’s recovery is not convincing yet as the downtrend is still intact. Thirdly, GBP/JPY, AUD/JPY and CAD/JPY are staying in range despite all the volatility elsewhere. There is not broad based direction in the Japanese currency for the moment. Read the rest of this entry »

Comex Gold (GC)

At this moment, Gold is still struggling below mentioned 824.5/838.8 resistance zone. Outlook remains unchanged. Intraday bias remains mildly on the upside as long as 786.20 minor support holds. Decisive break of mentioned 824.5/838.8 resistance zone will be an early alert that whole correction from 1033.9 has completed and stronger rise should then be seen to test 936.3 resistance first. However, on the downside, failure below 824.5/838.8 , followed by break of 786.20 support will indicate that an intraday top is formed. Further break of 739.2 support will maintain the original bearish view. In such case, fall from 936.3 should be resuming for 681 low and below. Read the rest of this entry »

Mid-Day Report: Market Sentiments Boosted by Fed’s Plan to Unfreeze Credit, Dollar Extends Weakness

Investors’ confidence is further boosted by Fed’s announcement to unfreeze credit for home buyers, consumers and small businesses Fed announced a plan to purchase as much as $600b in debt issued or backed by GSEs as well as setting up a $200b program to support consumer and small-business loans. US stock markets are set to extend the biggest two day rally since 1987. As risk appetite improves, dollar and yen are generally lower all over the board, extending this week’s decline. Dollar index dives to as low as 85.14 and is set to extend further lower towards 83.11 support. Crude oil recovers earlier loss today and is back pressing 54 level. Gold resumes recent rally to above 830 level.
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Daily Report: A Busy Day Featuring BoE and FOMC Minutes

The forex markets are still bounded in tight range in generally as markets are still searching for a theme and direction. Meanwhile, as mentioned before, Swiss Franc remains the weaker one as driven by its pull back in EUR/CHF and GBP/CHF crosses. USD/CHF continues to climb higher. GBP/USD, on the other hand, loses momentum after hitting 1.5080 minor resistance. Dollar index continues to be bounded inside a triangle like consolidation pattern below 87.98. A number important events are scheduled today, including the release of FOMC and BoE minutes as well as US housing and inflation data, which could trigger some volatility in the markets.

BoE MPC minutes are expected to reveal a 9-0 vote for the surprised 150bps cut earlier this month. With core CPI having the steepest drop in at least 11 years and a clear sign of turnaround in inflation trend, markets expect that BoE is now free to have further steep rate cuts from BoE to avoid a prolonged recession in the UK economy. Indeed, markets are pricing in another 100bps cut over the next 12 months. The minutes are expected to affirm this view. But the impact on Sterling might be minimal.

FOMC minutes, on the other hand, is expected to elaborate on the perceived dovish bias of Fed and provide details of the discussions between board members, including those in the intermeeting cut before Oct 29. Markets are pricing in 90% chance of another 50bps cut from Fed on Dec 16 and the minutes will likely have little impact to this view based on current economic and inflation outlook.

Consumer inflation in US has peaked at 5.5% in Jul and is expected to continue the down trend in Oct. Headline CPI in US is expected to moderate drop sharply by -0.8% mom in Oct, with year-over-year rate steeply down from 4.9% to 4.0%. Core CPI is expected to rose 0.2% with year-over-year rate down to 2.4%, after plateau at 2.5% for three consecutive months from Jul to Sep.

NAHB builder confidence surprised the markets yesterday by plummeting sharply from then record low of 14 in Oct to new record low of 9 in Nov. Such pessimism is expected to be reflected in today’s new residential construction data too. Housing starts is expected to continue the down trend and drop from 0.82m to 0.78m annualized rate. Building permits is also expected to drop from 0.81m to 0.78m annualized rate.

Daily Report: Dollar Higher after G20 Delivered Little Impact

Dollar edges higher as the markets open this week and remains firm after G20 delivered little impact to the markets. The Japanese yen, on the other hand, fails to sustain earlier gains after economic data showed Japanese economy shrank in Q3. The G20 statement called for a “broader policy response” including monetary and fiscal policies but nothing concrete was achieved to revive global growth. The message that individual countries should act “as deemed appropriate to domestic conditions” sounded as if there isn’t any consensus among the participating countries on specific actions. After all, not much was expected from the meeting though.
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Crude oil found temporary support at 54.67 yesterday and rebounded by more than $3/bbl to close at 58.24. Excessive selling, rising stock markets, better-than-expected inventory report and OPEC meeting were the stimuli. However, recent data reinforced our beliefs that OECDs are entering recession and China’s growth is slowing rapidly. Therefore, we continue to hold the view that the catalysts would merely provide short-term support to price and the benchmark index would resume downtrend later and fall to as low as $50.

US stock markets rose by more than 6% yesterday, as investors fled to the cheap energy and real estate companies. Today, Asian markets caught up and MSCI AP Index rose 0.7% to 82.90. European shares also open higher with FTSE, CAC and DAX added 2.80%, 1.67% and 2.72% respectively.

US Energy Department reported petroleum inventory data for a week ago. To analysts’ surprise, crude oil inventory gain came in lower than expected at 22K bbls, whereas the market expected addition of 1M bbls. Meanwhile, distillate added 0.516M bbls and gasoline added 1.982M bbls in inventory.

OPEC has moved its December meeting earlier on November 29 as the cartel could not see much impact from the last cut of 1.5M bpd in the Vienna meeting last month. Although reduced supply may make the demand/supply equation look more balanced. It also means more spare capacity which is bearish in lone term.
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Decline in oil accelerated after the benchmark contract closed below $60/bbl yesterday, first time in 22 months. Outlook on oil demand is very pessimistic as companies cut investments and drivers drive less. Market sentiment is so weak that enormous stimulus packages and rate cuts are not able restore. Currently trading at 58.35 (after falling to as low as 57.7), we believe the black gold would extend further weakness to 53.69 (100% projection of 147.27 to 90.51 from 110.45 at 53.69).

The ultimate reason for the decline is DEMAND.

Today, Asian stocks lost ground as more corporate trimming earning guidance. The MSCI Asia Pacific Index, after the 3.6% slump Tuesday, fell another 1.4% to 85.81, the lowest close since Oct 29. Resources stocks were the main losers. Energy giants Inpex and CNOOC retreated as oil traded down. Fortescue, Australia’s third-largest iron-ore producer plunged 11% after the company announced a possible drop in iron ore shipments. European shares are flat at opening.

As corporate earnings are regarded as proxy for economic growth, hence oil demand, disappointing company guidance exacerbate investors’ worries on demand outlook.

Market expected the International Energy Agency would trim 2009 oil demand forecast for the third month. At the same time, US Energy Department would release weekly petroleum inventory tomorrow. Reflecting bearish views on oil consumption, analysts adjusted their forecasts on inventory upward. According to Bloomberg survey, analysts expected crude oil stockpiles increased 0.75 mmb in the week ended Nov 7, gasoline stockpiles increased 0.2 mmb while supplies of distillate fuel added 1 mmb. The forecasts were higher than a day ago in which analysts expected addition of 0.5 mmb in crude and gasoline stocks while increase in 1.1 for distillate inventory.

Goldman Sachs commented that buildup of oil inventory during crisis caused ‘contango’ - price of short-term futures is less expensive than long-term futures. As oil price declined, people do not find it cost effective to use oil as they bought it, they’d rather store is for later consumption.

In the long run, IEA is also positive on oil. It forecast global oil demand would rise by 1% per year through 2030 while output decline at existing fields would accelerate to 8.6% (previously 6.7%). The agency also warned of an oil crunch should there be under-investment.

Gold dropped in European morning to as low as 728.1 as crude oil slumped and dollar strengthened against the pound. The benchmark contract for the precious metal is consolidating within the range from 778.3 to 717.1 in the form of a ‘triangle’ and a downside break would signal rebound from 681 have completed and a re-test of this low would be seen. In case of an upward breakout, recent rebound would extend gain to 814.4 but only a break of 822.5 (previous support-turned-resistance) would signal that recent fall may have ended.

The pound extended recent weakness and fell to as low as 1.5254, the lowest level since 2002, against the greenback, after Mervyn King, the Governor of BOE, said the nation is ready for another rate cut.

On the demand side, India’s import of gold plunged 30% in October in 44 tonnes due to depreciation in Rupee and lower demand in gold ETF. However, it would probably improve in November as we have already seen some buying returned in the last week of October. UBS forecast the precious metal to trade at $800/oz in one to three months’ time.
by OilNGold

Daily Report: Dollar and Yen Retreats Overnight Rally, UK in Focus

Dollar and yen were sharply higher overnight on concern of recession in the global economy. DOW was once down to as low as 8560 while crude oil also dropped to 19 month low of 58.32. Though, strength in dollar and yen was limited by late rebound in stocks and both retreat in Asian session. Technically speaking, as discussed before, the triangle consolidation in dollar index and EUR/USD might have already completed earlier this week and the current rise in the greenback could represent resumption of recent up trend. However, note that the strength of the current rise in dollar is not too convincing yet. Also, the development in DOW argues that another recovery might be seen before it breaks out of recent range. More importantly, triangle consolidations are usually more complicated than expected and the current rise might be just one leg inside the pattern. Hence, we’d still be cautiously bullish on the dollar as long as 85.69 support holds and are still expecting retest of recent high at 87.87. However, a break of this support will indicate that the consolidation is still in progress for another brief fall before completion.
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No change in gold’s outlook as choppy consolidation continues inside 717.10 and 788.3. Short term outlook remains neutral for the moment as such choppy sideway trading might still extend further. Nevertheless, even though another rise cannot be ruled out, we’d still expect upside to be limited below 824.5 resistance and bring down trend resumption. On the downside, below 717.10 will indicate that rebound from 684.6 has already completed. In such case, retest of this low should be seen first and then 100% projection of 1033.9 to 739.8 from 936.3 at 642.2.

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