Good morning from wonderful Hamburg. Market activity is likely to remain subdued until the result of todays U.S. presidential election is announced. Barack Obama has led the presidential race in every national opinion poll since the end of September while the Republican John McCain is still hoping to pull off a historic upset.
Market review
The RBA has reduced interest rates by 75 bps which was 25 bps more than expected. Already last month the central bank surprised investors by a full percentage rate cut in an attempt to cushion the economy from the financial turmoil. The AUD/JPY extends some losses on this news and fell about 2.6% on the day to 65.30. The fall in AUD/JPY carries over into other cross/JPY pairs, as the EUR/JPY is now down around 1.2% to 123.79.
The EUR is down against the USD and the JPY as the ECB is seen cutting interest rates by 50 bps to 3.25% from the current 3.75% on Thursday. The EUR/USD is trading under 1.26 currently and the EUR/JPY below 124.00. The single European currency fell 0.7% against the USD the previous day lingering concerns about the financial crises and the global economy prompted investors to cut risks and seek safety in USD-denominated assets. The USD-index dipped 0.1% to 86.36 after hitting a 2.5 year high of 87.88 last week. The USD/JPY is still trading under the psychologically very important level of 100 while Japanese investors are expected to sell the USD to repatriate their profits. Many exporters are assuming a rate of 100 USD/JPY in their business plans for the fiscal year which ends in March.
USD/JPY
Since August the USD/JPY has shown a very clear trend trough the Fibonacci retrecement lines. After touching the 90.82 support level the pair started to rise and is now over the 38% level. If the market breaks the psychologically resistance level of 100 we might expect further bullish movements towards the other retrecement levels.
EUR/JPY
Since the beginning of August the EUR/JPY has been trading in a bearish trend channel and a resistance line at 130. Last week the pair touched the 130 level and it’s still trading near the upper trend line and the resistance. If the market doesn’t break trough these lines it might continue its bearish phase.
