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Tuesday, 29 Nov 2011
USD Falls Despite False IMF Aid Story
The USD came off its highs yesterday versus the majors after reports in the Italian press that the International Monetary Fund (IMF) will be providing aid to Italy. These reports subsequently proved to be false. Recent price movements in the FX markets have become more and more driven by the headlines and this should continue as reports come from today's 2-day Eurogroup meeting.
USD - USD Down Despite False IMF Aid Story
The USD gave up a portion of last week's gains after reports of an IMF deal for Italy. The story proved false but that did not stop riskier assets from making a comeback at the expense of the USD. Both equities and higher yielding currencies such as the AUD came off of last week's lows.
The main news releases this week will come from the US with today's key data being consumer confidence. Initial numbers from the shopping spree on “Black Friday” hint at a strong start to the holiday shopping season which could signal a better Q4 GDP. On Thursday the ISM manufacturing PMI will be released and is expected to show an improvement over last month's survey. This is in sharp contrast to European PMIs which were released last week below the 50 boom/bust level. Friday will have the all-important non-farm payrolls report. Early forecasts are for an increase of 119K new jobs added to the US economy. Strong data from the US could help to support the recovery in higher yielding assets, though events in Europe seem to be driving the overall trend in the markets.
EUR - Germany and France Working towards Fiscal Union
The EUR/USD added on almost 1.5 cents to its price, climbing to the 1.3400 level despite the lack of solid news or economic data from the euro zone. There is speculation of Germany and France working together towards a fiscal union and this has supported the EUR. Tighter fiscal rules in the EU may be a precursor to additional ECB involvement to help solve the ongoing European debt crisis. Perhaps this is an instance of buy the rumor, sell the fact?
Additional details may come out of the Euro zone today as European finance ministers will meet both today and tomorrow to discuss leveraging the EFSF. Discussions of additional European integration will most likely be on the agenda as well. The risk is for negative headlines to follow the meeting which would likely weigh on the EUR.
The October low of 1.3145 is the support level that many market participants are looking at. A break here would open the door to the January low of 1.2870.
NZD - PM John Key Wins Re-Election
NZ PM John Key won re-election with a strong mandate for his second term. Key has focused on reducing government spending but his attempts have been slowed by the global financial crisis and multiple earthquakes. New Zealand bond markets have signaled an approval of the government's spending policies with bond yields falling, though this may also be a product of investors seeking alternative safe haven assets with the European debt crisis. Interestingly enough, Key is a former foreign exchange trader.
The NZD rose yesterday in-line with other risky assets. However, the appreciation in the currency may be short lived as the NZD/USD has already put in serious technical damage with a break of its long term trend line from the 2010 May low. Support is found at last week's low of 0.7370 with resistance at the old trend of 0.7565 followed by the May low of 0.7750.
Gold - Gold Prices Rise on Weak USD
Spot gold prices bounced higher yesterday on broad USD weakness as the price of gold climbed back above the psychological $1,700 level. Similar to the EUR, gold prices were moving on the headlines of an IMF deal to support Italy. Despite the news reports proving to be false gold held onto its earlier gains.
The rise in the commodity yesterday helped to take out the near-term resistance of $1,710 from the mid-November low. A continued move higher may see resistance at $1,768 from the falling trend line off of the September and November highs. To the downside spot gold prices have support at the short term rising support line from the November 21st low at $1,666.
The EUR closed last week below the psychologically important 1.35 level and a close below it on the monthly chart will carry an even greater significance. Both monthly and weekly stochastics continue to fall and a break of 1.3210 will likely test the October low of 1.3145. Below here at 1.3040 there is the 61% Fibonacci retracement of the move from June 2010 to May2011 though this may only prove to be a mile marker in the new downtrend for the pair. Support is located at the January low of 1.2870. The November 18th high of 1.3610 stands out as resistance.
Falling monthly and weekly stochastics may have the GBP/USD testing the October low of 1.5270 as the pair is pulling within striking distance of its long term uptrend from the 2009 low which comes in at 1.5050. Any move higher will likely encounter heavy selling from the July pivot at 1.5780.
The downtrend for the USD/JPY remains firmly intact and only a break above 78.95 from the falling trend line from the 2007 high may reverse the pair's bearish technical sentiment. A break above this line may have the pair testing the most recent post-intervention high of 79.50, a level that coincides with the pair's 200-day moving average. To the downside the November 18th low of 76.55 is the initial support, followed by the all-time low of 75.56.
The USD/CHF is testing its October high at 0.9310 and a break here will likely open the door to the pair's 20-month moving average at 0.9460 and the February high of 0.9775. Initial support is located at the November 18th low of 0.9080 with a deeper move perhaps taking the pair to the November low of 0.8760.
The Wild Card
After breaking lower from the triangle consolidation pattern that spanned the first half of November the S&P 500 retraced 61% (1,152) of its October bullish run before gapping higher. Should the stock index continue to climb forex traders may find resistance at the November 1st low of 1,208. However, momentum is moving lower and as such forex traders may be eyeing support at 1,123 from the September 9th low followed by the October low of 1,067.
|01:00||EUR||German Prelim CPI||m/m||0.2%||-0.1%||-|
|01:00||EUR||Italian 10-y Bond Auction||-||-||-|
|01:00||ALL||Jackson Hole Symposium||-||-||-|
|01:05||GBP||GfK Consumer Confidence||4||4||-|
|01:30||JPY||Tokyo Core CPI||y/y||-0.1%||-0.1%||-|
|01:30||JPY||National Core CPI||y/y||0.1%||-0.2%||-|
|09:00||EUR||Spanish Flash CPI||y/y||0.0%||-0.1%||-|
|10:30||GBP||Second Estimate GDP||q/q||0.7%||0.7%||-|
|10:30||GBP||Prelim Business Investment||q/q||2.0%||1.6%||-|
|14:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|16:00||USD||Revised UoM Consumer Sentiment||92.9||93.2||-|
|16:00||USD||Revised UoM Inflation Expectations||2.8%||-||-|