RBA hiked rates by 25 basis points overnight and we expect more rates hikes to come

Tue, Oct 6 2009, 13:37 GMT
by Per-Erik Karlsson

Market comment

S&P 500 futures traded closed higher by 12.75 points yesterday and a further 10 points this morning. The buying interest that we spotted after release of payrolls Friday mentioned in yesterday’s report is taking the market higher as anticipated. The next resistance level is 1056 in S&P 500 futures. USD getting sold overnight and this morning based on an article out in The Independent saying Arab states have started talks with China, Russia, Japan and France to stop using the U.S. currency for oil trading, the Independent reported, citing Middle Eastern and Chinese banking officials it didn’t name. (See link below) Russia already exports most of it oil in Euro, but not sure Saudi Arabia would be so keen to re-price oil in a non USD currency as they have a large interest in a strong US dollar and want US to be involved in the region. Also the Chinese currency has to be free floated to really make it work and that is probably several years into the future. Basically, it is unlikely that any shift would be made in the near term in our opinion and these kinds of articles have been seen before. In the article they mention a 9 year plan, so nothing happening near term, but of course the signal effect is important for the market.

The USD sell off is fueling commodities ant metals higher and we note that Gold is approaching the key 1033 resistance level (all time high). We would like to see a break out above 1038 or so before going long. Crude oil is above 71 USD per barrel this morning and technically Crude is still stuck in the 65 to 75 range we have seen since 1st of July and need to break out of this range to bring any more direction. Nat Gas futures remains bullish above 4.33 (Friday’s low) and need to see a close above 5.05 to open for a run towards 5.20 (low Dec 08). Soybeans broke the key support at 892 Friday on sell off in grains, but was unable to move lower yesterday, meaning it could be a potential false break, we are looking at possible longs in the Soybeans over the next few days as it looks oversold in our opinion. We expect the JPY strength to start hurting exporters going forward, which should limit further gains and key support remains 87.13. We are already seeing reports that Japanese exporters are very unhappy with the JPY recent strength, with sales weakening and we would not be surprised to see verbal interventions from BOJ and possibly a real intervention if JPY continues to trade stronger. The Japanese economy is already struggling with weak fundamentals and unfavorable demographics, so it looks unwise to us that suddenly BOJ should let the market set the exchange rate, when they have been the largest currency manipulator in recent history. We favor being long AUD and CAD vs. JPY as we think USD will struggle going forward. More talk of USD poised to fall going forward this morning, old news and we agree in general. GBP continues to struggle vs. Euro and we stick to our view for some time that GBP will underperform Euro for the rest of the year. The new FSA liquidity standards requiring banks to put aside more money for government bonds and cut reliance on short term funding cannot be a good think for GBP either, article below. RBA hiked rates by 25 basis points overnight and we expect more rates hikes to come. We remain favorable of AUD, CAD and NOK going forward as we have been for time now.

Some interesting news stories:

Technical’s

Euro: Long term bullish trend intact above 1.4450 and 1.4840 is still the key resistance ahead of 1.50. A break of either 1.4450 or 1.4840 would open for the next directional move.

Cable: Weak below 1.6115 (former break down level), support down at 1.58

USDJPY: Last week’s low of 88.25 is key support and while above this level we are looking for a move back toward the 93 level and as the repatriation flows back to Japan are done after the half year end closed yesterday, we expect JPY to struggle for the rest of the year.

Swissy: Failed at 1.0453 and back below 1.0280 this morning, key support down at 1.02. Basically 1.02 to 1.0453 range, needs to break either direction for a move directional move.

AUDUSD: RBA rate hike is supportive for AUD and we see an overhead resistance line coming in at 0.8880 as today, but looks like 0.90 is the real target now.

USDCAD: The move back towards the 1.06 level yesterday and a daily close below 1.06 would target the September 2008 lows around 1.03 followed by parity.

EURJPY: 129.80 remains key support for now and next resistance level is 132.70.

GBPJPY: Got down to 140 Monday last week and traded up above 144 yesterday. A clear reversal pattern on the daily chart after closing above 142 Tuesday last week. We would like to see a break above 145 to get more confident of the move higher. A break below 140 opens for another leg lower.

AUDJPY: Key pivot point is 76.50 and basically medium term bullish outlook intact above this level. Key resistance is 80 today. A break above 80 would open for 82.

Our outlook

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