Risk Sentiment Mixed on Spanish Election Results

Market Brief

Risk appetite has marginally returned after Fridays sell off as Prime Minister Rajoy's Popular Party won in Galicia, removing another obstacle to a Spanish bailout. While the nationalists won in the Basque country, this result had been expected. Markets will now be focused on elections in Catalonia on November 25, and there are calls for greater autonomy within the region. Asian equities were slightly higher as the Nikkei rose 0.40%, Hang Seng 0.42% (higher level in 8 months) and Shanghai 0.21%. EURUSD was able to rally off the 1.3012 low to 1.3067, while USDJPY continued to trade higher up to 79.66 on the back of the weak export data. Encouragingly to risk seekers, European peripheral yields continued to fall. Japan's seasonal adjusted trade deficit is the worst on record. Japan's exports fell 10.3 percent in September from a year earlier down for the fourth straight month, MoF data showed on Monday, suggesting that anti-Japanese sentiment in China over a regional arguments was adding to a slump in shipments. The weakness of the JPY is due to improvement in risk sentiment, stronger than anticipated US and Chinese economic data and expectations that the Oct 30th BoJ policy meeting will contain the announcement of further easing (rhetoric from BoJ Governor Masaaki Shirakawa clearly indicates we are heading in this direction). From Australia, RBA member Broadbent stated "I would hope the Australian dollar gets a bit weaker going forward as the mining boom eases off. And then we might get a bit more of a boost from having the currency a bit lower, rather than the dampening effect of being higher." In addition to that comment, she felt confident that the economy would recover "If we can achieve a soft landing from the mining investment peak and have a bit of a build-up in housing and retail sales, then we will be very fortunate". While the AUD was little moved by these remarks, it give us insight to the RBA thought process and potentially the markets are over positioned for further rate cuts. However on the other hand in Australia, Mid Year Economic and Fiscal Outlook the report, used a statement by RBA Governor Stevens a week ago when he said: "On monetary policy, we have ammunition. Unusually for an advanced country, we actually have materially positive interest rates, so if needed we have scope to move, as long as inflation is okay, which at present it seems to be."

Currency Tech

EURUSD
R: 1.3285
R: 1.3170
CURRENT: 1.3030
S: 1.2940
S. 1.2890

GBPUSD
R: 1.6215
R: 1.6185
CURRENT: 1.6034
S: 1.6015
S: 1.6000

USDJPY
R: 80.40
R: 79.90
CURRENT: 79.68
S: 78.25
S: 77.90

AUDUSD
R: 1.0405
R: 1.0375
CURRENT:1.0311
S : 1.0245
S : 1.0200

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