Daily Pivots: (S1) 1.3274; (P) 1.3345; (R1) 1.3438

EUR/USD’s rise continues in early US session and reaches as high as 1.3585 so far, taking out mentioned 100% projection of 1.2329 to 1.3290 from 1.2549 at 1.3510. At this point, intraday bias remains on the upside as long as 1.3430 minor support holds. Focus now turns to 1.3768 cluster resistance. On the downside, below 1.3430 minor support will turn intraday outlook neutral first. But another rise is still in favor as long as 1.3250 support holds. Read the rest of this entry »

Weekly Review and Outlook: Euro Strengthened in Volatile Markets, Dollar Sharply Lower ahead of FOMC
by ActionForex

While the headlines might be dominated by the automaker bailout drama, risk aversion or dollar’s loss of its safe haven status last week, it’s Euro’s strength and momentum that should be paid most attention to and most closely watched. Dollar’s index’s sharp decline to as low as 83.22 last week was inline with the head and shoulder top scenario that indicates a medium term top is at least in place at 88.46. However, Dollar’s weakness was indeed not too severe except version the yen which saw USD/JPY dived to 13 year low of 88.54 before rebounding. GBP/USD, AUD/USD and USD/CAD are still kept by near term levels only, without significant technical breakthrough. On the other hand, while much volatility was seen in yen crosses, most of the are still held by near term low and thus there is no confirmation of a another round of massive yen buying yet. Read the rest of this entry »

Oil price continued hovering around $53 level Thursday. Near-term outlook on price is mixed as there are good and bad news surrounding us. On the positive side, the Fed committed up to $800 billion on Nov 25 in addition to the previous $750B to unfreeze credit for homebuyers, consumers and small businesses. It will also buy debts. The people’s Bank of China announced to cut lending and deposits rate by 1.08%, hoping to put a floor in China’s growth. As the largest and second largest oil consumers in the world, investors hope the policies adopted by the US and china would stimulate corporate and consumer activities which hence increase demand in oil.

However, on the negative side, The US Energy Department reported crude oil inventory gained by 7.3 mmb on the week ended Nov 21. The addition was really out of expectation as both Bloomberg’s and Platts’ survey expected gain of around 1 mmb. The report indicated that analysts still overestimated demand. We expect more and more downgrades in oil price follow.
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Mid-Day Report: Euro Extends Losses, Dollar Rebounds Further
Euro extends earlier losses after the release of record drop in inflation and rise in unemployment that spurs speculations that ECB could cut deeper than 50bps next week. EU/USD breaches 1.27 level briefly while EUR/GBP extends the correction that started at 0.8660, heading to 0.824 level. EUR/JPY is pressing 121 level. Dollar, on the hand, strengthens generally against most currencies except the yen. Dollar index’s break of 86.43 resistance argues that correction from 88.46 has completed and more upside could be seen to retest this high. Data released in US session saw Canadian trade surplus narrowed to 5.64b in Q3. Oct PPI was flat mom.

Eurozone inflation posted a record drop in November with HICP flash estimate sank further to 2.1% from 3.2% in October. After being above ECB’s target of 2% since Sep 07, inflation is now very close to such target. Unemployment rate came in at 7.7% for October, the highest level in 2 years (consensus: 7.6%). The number of jobless people jumped by 225K to 12 million. Among the 15 nations, Spain got hit the most, with unemployment rate rose to 12.8% in October (Sep: 12.1%, October 07: 8.5%), while Germany recorded a 7.1% rate in October, which is the same as September’ data and declined from 8.1% a year ago and unchanged from. September’ unemployment rate was also revised upward to 7.6% from 7.5%. While a 50bp cut is fully expected from ECB on Dec 4, there’re increasing speculations of a larger cut considering faster than expected deterioration of the economic outlook and moderation of inflation.

Earlier today, Japan released a number of economic data which indicated the nation is in deepening recession. Manufacturing PMI for November fell to 36.7 (Oct: 42.2), the ninth consecutive fall and a record low since the survey started in 2001. Concerning the components, output index fell to 30.9 from 39.7 a month ago, its sharpest fall ever. New orders plunged to 27.3 from 34.5 while new export orders also fell to 31.1.

Household spending fell -3.8% in October on annual basis worse than -3.4% as market expected. Though better than expectation, Japan retail sales still dropped 0.6% in October from a year ago and marked the decline for the second month. Accounting for more than 50% of Japan’s GDP slowdown in consumer spending signaled the nation will take longer to recover from recession. Unemployment rate fell to 3.7% in October, much lower than economists’ forecast of 4.2% and set a one-year low.
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Economic calendar is relatively lighter this week. From US, trade balance , Fed Budget. retail sales, University of Michigan consumer sentiments will be released. In Eurozone, main focus is on Germany ZEW Investor Confidence, HICP final, Q3 GDP. Form UK, PPI, Trade Balance, employment report will be featured. Other scheduled data include Swiss ZEW, combined PPI, Canadian housing starts, new housing price index, trade balance, and New Zealand retail sales.

On the technical side, main focus is on how the current consolidation, in particular in dollar index and DOW, will develop. It will become even harder to trade if range in the dollar index continues to narrow as the triangle consolidation goes. Though, a break of 86.89 will be an early signal that the consolidation has completed. Focus on DOW will be on whether it will continue the current slide to next near term support at 8599. Another focus will be the development in yen crosses. So far, with the exception of GBP/JPY, most yen pairs are still holding above near term supports. However, weakness in the stock markets this week will likely trigger selling in yen crosses which will send them through near term support and thus pave the wave to retest recent lows.

Mid-Day Report: ECB 50bps, BoE 150bps, SNB 50bps… but Markets Still in Range

Markets remain steady in early US session even though three of the world’s major central banks announced rate cuts today. BoE’s 150 bps cut surpassed the most aggressive speculation of 100bps. In a somewhat coordinated way, SNB cut rates by 50bps in an unscheduled meeting. Expectations were then built up for a deeper than expected 50bps cut from ECB but the bank disappointed market participants by cutting rate by 50bps, exactly as they originally expected. There were plenty of reasons to send the markets to either side today but after all initial kneejerk reactions, major pairs and crosses are still staying in established range.

So what is happening? We believe the forex markets are already pricing those cuts as well as, very likely, further rate cuts from majors central banks to eventually bring interest rates within a very tight range between 0-2%. The indecisiveness is indeed on the unknown impact in cutting ahead of the curve or behind the curve. Somehow, this could be seen in EUR/GBP’s sharp fall even though BoE cut much more than ECB. In the end, the effect will be reflected in the economy which will also be led by the stock markets. So to put it in simple way, the forex markets are still driven by the developments in the equity markets and traders will probably avoid to commit too much before the correction/consolidation in the global equity markets complete.

Having said that, attention should be paid to the development of DOW today and tomorrow. A short term top should be made yesterday after Obama’s win and if the DOW continues its fall towards the lower end of the range below 8,000 level, the forex markets will follow. Also another key factors in driving the stock markets, as well as the forex markets will be tomorrow’s NFP report.

ECB just met markets expectation and lowered interest rates by 50bps to 3.25% on unanimous vote even though the possibility of a 75bps cut was discussed. Though, the case of 100bps cut was not discussed today. In the following press conference, Trichet said that markets are now facing an extraordinary degree of uncertainty stemming from the financial market turmoil which will dampen demand in the Eurozone. Recent data confirms that growth momentum has weakened. Sluggish domestic demand and tighter financial conditions are expected. Upside inflation risks has fallen and Trichet expects strong CPI declines due to base effects.

BoE surprised the markets by cutting as much as 150bps today to bring the benchmark interest rates to 3.00%, lowers since 1955. Also, this is the largest single cut in 16 years. The accompanying statement acknowledged that there is a “marked deterioration in the outlook for economic activity at home and abroad,” and “availability of credit to households and businesses is likely to remain restricted for some time”. Risks to inflation is believed to have “shifted decisively to the downside,” and now with “substantial risk of undershooting the inflation target”. Hence, it’s believed that the policy easing cycle is not over yet.

In also a surprised move, SNB lowed the LIBOR target rate by 50bps to 1.5-2.5%, with point target of 2.0%, in an unscheduled meeting. SNB said in the statement that the global economic outlook has “deteriorated more severely than anticipated”. Much impact is expected to growth which, as SNB said, might even be “negative” in 2009.

On the data front, jobless claims came in at 481. Q3 labor cost rose 3.6% in US, with productivity up 1.1%. Canadian building permits surprised on the upside, rising 13.4% in Sep. Germany factory orders dropped sharply by -8.0% mom, -2.7% yoy in Sep. UK Halifax house prices dropped more than expected by -2.2% mom in Oct. New Zealand unemployment rate rose less than expected from 3.9% to 4.2% in Q3. Australian unemployment rate was unchanged at 4.3% in Oct, better than expected 4.4%. Japan leading indicator rose 0.2% to 89.2% in Sep.
By ActionForex

WTI crude oil for December delivery retreated after faltering below 71.77 today as the 10% rally Tuesday triggered some profit-taking and Obama’s victory was positive for the dollar. Currently trading at 67.70, there’s no clear direction for the black gold’s outlook and we think it’s likely to trade within recent range below 71.77.

Demand continued to be the main concern. US auto sales slumped 32% in October, the lowest monthly total since January 1991, with limited loan access and reduced consumption due to weak economy being the main causes. General Motors reported a 45% drop; Ford Motor reported a 30% drop in car and light-truck sales; Toyota Motor also declined 23%.

On the supply side, some OPEC members announced they have cut production significantly. Algeria’s energy ministry ordered a reduction of output by 71,000 bpd as of Nov 1 whereas Nigeria has canceled at least four crude cargoes originally scheduled to load in November and December.

Some of the new president’s policies were negative for oil. For instance, Obama favored a windfall profit tax on petroleum producers and promised to boost renewable energies.

Today, the market is waiting for EIA’s weekly inventory report. According to Bloomberg survey, analysts expected last week’s inventory for crude oil and distillate increased by 1mmb and 1.55 mmb respectively. However, they expected gasoline stockpiles to fall by 0.65 mmb.

Stock markets were mixed today. In Asia, the MSCI Asia Pacific Index added 4.6% to 94.36, paring its decline this year to 40 percent. Nikkei advanced for a second day, gaining 4.5% to 9521.24. Investment sentiments turned positive after Obama won the election with a big margin which suggested a stable government and that the president can carry out the policies more easily. On the other hand, European stocks fell for the first time in 7 days as ArcelorMittal and Carlsberg reported poor 3Q earnings. FTSE, CAC and DAX dropped 2.68%, 2.76% and 2.13%, respectively.

Gold declined in Asian and European sessions as investors believed Barack Obama’s presidency and Democrat’s gains in Congress would speed the dollar’s recovery against the euro. The precious metal for December delivery plunged to 755.7 (low: 750.8) after rising to 770. We expect price would continue to trade within range of 681 and 778.3 in recent days. The greenback climbed against the Euro, Sterling and Aussie.

Apart from election results, there are several factors supporting the dollar. US interest rate reached 1% after the 50 bps cut in FOMC meeting last week and other countries are going to catch up with the trend. ECB and BOE will announce rate decision Thursday (Both are expected to cut by at least 50 bps). The market has been talking about G7 ZIRP - zero interest rate policy. Convergence of yields removed one disadvantage of USD.

Moreover, the Euro zone should be more exposed to Eastern Europe bank debt than the US or Japan. Reasons pressures faced in Eastern Europe made investors cast doubt on the durability of the Euro zone monetary union.

Although investors are cheered by the Democrat’s victory, long term impacts of Obama’s government to gold prices are uncertain. While we believe the current result is positive for the dollar, recovery of economy, improved business investment (expansion in industrial production) and consumer spending (jewelry consumption) would spur demand for the precious metal.
By OilNGold

The financial markets respond positively to the European rescue plan announced before market opens. The plan is different from the vague G7 statement and as French President Sarkozy said, it achieved “concrete measures” as well as “unity” across the Eurozone. In short, the plan includes state guarantees on bank debts until the end of 2009 with maturities up to five years. The governments are allowed to recapitalize financial institutions by buying bank stakes with preference shares or other instruments. ECB also pledged to look at enlarging access to the system of guarantees to include commercial paper even though it doesn’t have the legal power to do so yet.
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Action Insight Daily Report
While the stock market crash continues all over the world, the forex markets are relatively steady so far. Yen edges higher against dollar, euro and sterling but remains in range so far. Dollar continues to retreat against most major currencies. The biggest loser today is indeed the Aussie which dives to as low as 0.6746 against dollar and 67.26 against the yen. The weakness in the Aussie is some what a delayed reaction to yesterday’s unexpected 100bps rate cut from RBA as well as carry trade unwinding. The Aussie is additionally pressured after data showed consumer confidence plummeted by -11% in Oct.

Both Bernanke’s speech and FOMC minutes yesterday hinted that Fed is ready to cut rates. Interest rates futures continue to show full probability of 50bps cut from Fed on Oct 29. Though the odds for 75bps cut was down slightly from 40% to 32%. Nevertheless, the firm expectation for rate cut provided no support to US stock markets. Down recovered briefly to above 10,000 level but reversed and extended decline to close over 500pts down to 9,447. Fed’s new measure to buy commercial paper to help corporations offered little relief to investor confidence.

Nikkei was also hit hard today, dropping over 9% and hit the lowest intraday level of 9,159 in five years. Research report showed the number of corporate defaults in Japan accelerated in Sep. Bankruptcies rate rose sharply to 34.4% annualized rate. Total debt from bankruptcies in Japan grew to 5.36T yen.

UK government announced a plan to invest about 50b pounds to prevent collapse of the UK banking system. The government will buy preference shares and BoE will make 200b or above available for banks to borrow under the special liquidity plan. UK government will also provide a guarantee of 250b pounds to help refinance debts.

On the data front, Nationwide consumer confidence in UK dropped less than expected to 50 in Sep. Japanese Economic watch DI dropped slightly to 28 in Sep. Eurozone Q2 GDP final, Germany industrial production, Canadian housing starts and US pending home sales will be released later today.

By ActionForex

World economy is deteriorating, US, Europe, Japan and it’s will soon be spreading to emergining markets such as Russia, India and China. Seeing the recession coming and the outlook full of uncertainty, we see that gold, despite recent volatility, offer defensive and lucrative returns

Oil extended last week’s sharp fall Monday morning. Benchmark futures broke 90.51 support in European session and plunged to as low as 88.89 before recovery. Currently trading as 90.90, the black gold managed to rebound as both MACD in hourly and daily charts have displayed the selloff has somehow lost momentum. However, reckon 96.03 would limit upside and yield resumption of recent decline. As 90.51 has been broken, next downside target will be found at 85.42 .
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