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Forex − FX Markets Drift Due to Lack of Drivers

Tue, Nov 24 2009, 10:04 GMT
by Peter Rosenstreich

ACM - Advanced Currency Markets

Forex News and Events:

The lack of true drivers in markets means that wave-like pattern instinctively takes hold. So it's Tuesday, which means that risk appetite must be lower. USD was on a firmer footing due to the slightly pullback in investor sentiment. EURUSD was able to momentarily peak past the 1.5000 barrier before buyers disappeared and the pair steadily fell to 1.4900. However, as with the broader FX trend, the EURUSD is still well within its 1.4875 – 1.5000 range. We are seeing much the same range trading in USDCHF and GBPUSD, 1.0000 to 1.0220 and 1.6450 to 1.6700. JPY crosses remain under heavy pressure, as risk correlated trade felt the brunt of shift in sentiment. Support levels particpants are watching are for NZDJPY 63.15 (weekly cloud) & GBPJPY 143.60 (trend line support). Perhaps the most interesting movement, or lack thereof, has been within the commodity currencies, which have not kept pace with the surge in commodity prices, highlighted by spot Gold’s rapid rise to $1174.00oz. Part of the problem has been the commodity currencies central banks talking down monetary policy tighten and therefore shifting rate expectations. But in our view, it has more to do with nervousness of FX players to follow trades into what seems to be in overbought territories. But from a longer term macro perspective we see most commodity currencies as undervalued and expect investors to reenter long risk trades as commodity prices remain elevated and rate expectations adjust to the realities of faster domestic growth & inflation. Regional Asian equities were broadly lower, as risk appetite naturally declined (despite the encouraging US Existing home sales surging by 10.1% yesterday), news that West LB needs more capital and Standard & Poor’s bleak assessment of Japanese banks; citing Sumitmo Mitsui and Mitsubishi UFJ as among the banks with the weakest capital base. Interestingly, for a short while Shanghai B shares, traded in USD, dropped 6%, while A shares denominated in CNY remained steady. Clearly, traders are now contemplating some level of revaluation. At some point, even the most resolute cynic (me) must consider a world with a more fairly valued CNY….but not yet. Short USDCNY forward trades on the hope of shift on in exchange rate mechanism, is still rightly called “China Death”. The highlight of the day will undoubtedly be the release of November's FOMC minutes and details into the change on wording. The minutes should supply some clarity in the Committee's new conditionality language, which stating that members would keep rates low for an "extended period" and the objective to cut the size of its agency debt purchase program from $200bn to $175bn. In regards to forecast, we expect we suspect that the latest updated economic projections will show a bit stronger figures on growth and slightly lower ones oncore inflation. Also in the US, 3Q GDP should be adjusted slightly lower, softer consumer spending growth and a larger contraction in inventories, but unless we see a significant deviation we doubt the release will be a market mover. Overall, the short holiday’s filled week will undoubtedly provide some distortions in FX prices, but we don’t see an structural change within the US or markets, which should halt the greenback's eventual slide above 1.5060.

Today's Key Issues (time in GMT):

09:00 EUR Germany: IFO business climate, index Nov 92.5 exp
09:00 EUR Germany: IFO current assessment, index Nov 88.0 exp
09:00 EUR Germany: IFO business expectations, index Nov 97.2 exp
09:00 NOK Mainland GDP, % q/q Q3 (-1.7) 0.3 (-1.9) prior
09:30 GBP Business investment, % q/q (y/y) Q3 -3.9 (-22.5) exp -10.2 (-21.8) prior
09:30 GBP BBA mortgage approvals, k Oct 42.1 prior
09:30 GBP BBA net mortgage lending, £ bn Oct 3.1 prior
09:30 GBP BBA net consumer credit, £ bn Oct -0.3 prior
09:30 ZAR GDP, (Annualized) 3Q -3.0 prior
09:45 GBP BoE Governor King and MPC members testify Committee on November's Inflation Report
10:00 EUR Industrial orders, % m/m Sep 0.5 exp, 2.2 (-21.8) prior
13:30 USD GDP, % q/q saar (y/y) Q3 2nd 3.0 (-2.5) exp adv 3.0 (-2.5) prior
13:30 USD GDP price index, % q/q saar (y/y) Q3 2nd 0.8 (0.7) exp adv 0.8 (0.7) prior
14:00 USD S&P/Case-Shiller 20-city HPI, % m/m (y/y) Sep (-9.2) exp, 1.2 (-11.3) prior
14:00 USD S&P/Case-Shiller national, % q/q (y/y) Q3 1.4 (-14.9) exp
15:00 MXN Bi-weekly CPI, % 2w/2w Nov 0.68 exp, 0.35 prior
15:00 USD Consumer confidence index Nov 47.0 exp, 47.7 prior
15:00 USD FHFA home prices, % q/q (y/y) Q3 -0.7 (-6.1) exp
15:35 GBP BoE Governor King and MPC members testify
17:30 CHF SNB 's Roth speaks on the subject of financial crisis
19:00 USD FOMC minutes released Nov 3-4
22:20 AUD RBA Deputy Governor Battellino speaks
23:50 JPY CSPI, % y/y Oct -2.6 exp
23:50 JPY Trade balance, bn JPY Oct 525.3 exp

The Risk Today:

EurUsd Still vey much range bound between 1.4875 and 1.5000. EURUSD had been trading in a short-term downtrend since topping at 1.5047 on 11th Nov, but support held at 1.4800 after being tested several times. The first attempt at resistance at 1.5049 has repelled at the 1.5000 boarder but a break above that level would eye 1.5063 (26 Oct highs and last major resistance ahead of 1.5200). The approaching US Thanksgiving Day holiday should keep trading subdued.

GbpUsd After breaking its 1 month uptrend (started on 13 Oct) last week around 1.6680 levels, GBPUSD suffered a heavy drop down to 1.6459 levels on Friday, but subsequent USD weakness has rescued the pair from further downside for now. The pair is having a hard time holding above 1.6600 for a decisive retest of 1.6680 old support now turned resistance, but only a break back above 1.6750 will negate the bearish bias from here. Immediate support comes in at Friday’s lows 1.6459; a break below that leaves very little technical support until 1.6272 downside support

UsdJpy Sideways movement continued last week within the 88.63 - 89.53 range. Today USDJPY fell slightly below the 88.63 support to bottom at 88.56, however this couldn’t be considered a definitive breakout and indicates that rangebound trading will persist until a clear breakout materializes. The long term downtrend remains the dominant bias, with next downside support of 88.00 being the only barrier ahead of 87.15 major support.

UsdChf USDCHF trading in the middle of its range. Yesterday failed to break lower end of the channel its been trading in for the past week around 1.0090 but immediate support comes in near here at 1.0075 (18th Nov low). A break below suggest further drop towards major support at 1.0035, as 2009 bearish trend is intact, and parity remain the target, while major resistance around 1.0200-20 should contain any rallies.

Resistance and Support:

Published on  Tue, Nov 24 2009, 10:11 GMT