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Asian Session − Crude Surges

Wed, Apr 23 2008, 08:59 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets

Market Brief

Pressure on the Usd continued in Asian session as crude futures reached a new record high of $119.90brl. Prices in crude will dominate the Usd price movement in the near term. Crude prices were supported by supply worries connected to refinery strike in Scotland and potential disruptions in Nigeria. Increasing risk appetite and surging commodity prices has given a strong boost to Aud, Nzd and Nok. Factors that we don’t expect will shift in the short term. In addition, support for carry trades especially those funded in Jpy has gained traction, with AudJpy touching the psychological 98.00lvl.

US equity markets lost ground on Tuesday, as earnings on the whole proved to be disappointing. In addition, existing home sales for March showing continued decline in the housing sector, there was little positive to grab on to for bullish investors. Asian markets are posting gains this morning, with the Nikkei up 0.6%, the Hang Seng up 0.9% and MSCI A-P up 0.8%. Stocks hit a 2 month high, as commodity producers rose on the back of record prices. AU Optronics reported record profits, helping sentiment in the tech sector. Chugai, the Japanese unit of Roche, rose nearly 10%, as it raised its net income forecast following planned price increases. BHP Billiton reported that its iron ore output rose 22% in its Q3. Majors Europeans Index ( Euro stoxx 50, DAX & CAC) are trading slightly above fair value ( + 10 Bps on average).

With energy prices surging inflation in the Eurozone doesn’t look to be easing any time soon, while hawkish comments by the ECB members provide additional evidence. ECB’s Noyer stated that interest rate could go in either direction and the ECB will do whatever is necessary to ensure inflation drops below 2.0% next year. The bullish sentiment surrounding the Eur should last even with the Eur at these elevated levels.

Australian CPI surged to the highest level in 17 years reaching 4.2% vs. 4.0% exp and 3.0% prior reading. This figure is well above the RBA comfort zone of 2-3% and central bank will have to stay nimble. If signals of moderation in the domestic economy and the neutral tone in the last RBA minutes keep the market sentiment on the Aud bearish, data like we have seen today will move the RBA, in all probability, to hike again in 2008.

Riksbank and Norges Bank will be announcing their rate decision this afternoon. We are expecting the Riksbank to hold the rate steady at 4.255 and Norges to hike 25bp to 5.50% (comments made by the Bank’s Governor, Svein Gjedrem, last week supports this view). Given the current environment Nok is one of our favorite currencies and expect the krona to stay supported by tightening bias and interest rate differentials.

On the continent flash PMI survey is expected the eurozone economy as expanded slightly but pipeline price pressure remain elevated. At least one side will give ECB members some level of comfort.

We are expecting the BoE MPC minutes to show an unanimous vote to cut interest rates by 25bp to 5.00% (however there is a decent probability that Blanchflower called for a 50bps cut again). The market will also focus on whether the committee believe the credit crisis is reaching a point were more aggressive easing is necessary.

Currency Tech

AUDUSD
R 3: 0.9657
R 2: 0.9536
R 1: 0.9517
CURRENT
S 1: 0.9540
S 2: 0.9391
S 3: 0.9318

EURJPY
R 3: 166.69
R 2: 166.17
R 1: 164.94
CURRENT
S 1: 163.30
S 2: 162.68
S 3: 162.16

USDSGD
R 3: 1.3792
R 2: 1.3626
R 1: 1.3599
CURRENT
S 1: 1.3472
S 2: 1.3318
S 3: 1.3138

• S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot

Published on  Wed, Apr 23 2008, 11:47 GMT