Asian Session: FOMC Minutes Provide a Reality Check

Market Brief

The USD continues to trade near yesterday's lows in Asian Session as the FOMC's down beat projections hurt sentiment and slowed the greenback losses. The EurUsd traded in a 1.3755-1.3810 range and UsdJpy traded in a 94.26-95.00 range while equity markets in the Asia-Pacific region are also slightly lower following Walls Street decline. Yesterday's FOMC minutes showed Fed officials marking down GDP projections from a range of -0.5% to -1.3% to a new range of -1.3% to -2% for 2009, while unemployment forecasts were also raised (effect on Stress Test results will need to be examined). However, projections for total inflation was little changed. Over all the effect on the FX markets were balanced as the revelation that the Fed’s quantitative easing program may have to be expanded further to ensure an adequate recovery, the negative assessment of the economy eventually weighed on stocks

The gold rush carries on, as Traders continue to take long positions driving prices higher. Inflationary fears are acting as a strong supporting factor of the precious metal trading at current levels. Gold 1M forward contracts point to further upside with interim resistance at medium-term resistance at $950oz. Our theory suggesting that gold would benefit in an environment of greater risk aversion or heightened risk appetite stands, as investors would hold this instrument as a tool against inflation and an alternative to govt. securities if markets pull back. As commodities continue to rally on the back of a weaker dollar, gold should follow suit with the possibility of breaking new highs towards the end of 2009. ETF flows remain strong, and institutional buyers express a mild bullishness regarding price expectations.

Today’s economic calendar is interesting given the lineup of leading indicator data, with focus likely to be on the Euro-area PMI data, US initial jobless claims and the US Philly Fed Survey in addition to the more coincident UK retail sales report. Given the sharp jump in the ZEW investor sentiment survey markets will be looking additional signals in the Euro-area releases that the speed of contraction is gradually declining. However, the unexpected fall in the ZEW current conditions index gives rise to temper optimism. In US data, we expect the crisis in the auto sector (dealerships closing) to push jobless claims higher and a show drop in the ISM manufacturing survey in the near term.

Currency Tech

AUDUSD
R 3: 0.8519
R 2: 0.8350
R 1: 0.8095
CURRENT 0.7727
S 1: 0.7630
S 2: 0.7450
S 3: 0.7337

EURJPY
R 3: 134.82
R 2: 133.59
R 1: 132.40
CURRENT 130.23
S 1: 126.63
S 2: 124.39
S 3: 122.10

USDSGD
R 3: 1.4845
R 2: 1.4803
R 1: 1.4748
CURRENT: 1.4561
S 1: 1.4523
S 2: 1.4501
S 3: 1.4446

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