Commodity Bloc Keeps on Truckin (Morning Slices)

Published October 7th, 2009 - 01:54 GMT


Fundys – Price action has been somewhat bi-polar at this point of the day and ahead of the US session, with the Euro, Swissie and Pound all consolidating, while the commodity bloc and Yen continue to surge. Aussie, Kiwi and Cad have all broken to fresh 2009 highs against the buck, and Usd/Jpy has taken out 88.25 support to expose its yearly lows at 87.15. The main release in Europe has come in the form of a weaker than expected Q2 final GDP print, with the Euro weighed only a bit after the number. Despite a better than expected UK Nationwide consumer confidence result in early Asia, Sterling still remains the laggard, with traders not able to forget about Tuesday’s devastating industrial production numbers. Also in the UK, shadow chancellor Osbourne has said that Britain should not adopt the Euro. Meanwhile, the Australian Dollar is still the darling of the FX market, with Tuesday’s pivotal rate hike generating a lot of fresh buy interest on a further widening of yield differentials in favor of the antipodean. It is however somewhat ironic that data releases on Tuesday in the form of trade, and Wednesday in the form of home loans, have been weaker than forecast. Nobel prize winning economist Joseph Stiglitz warns that the world is far from out of the global recession. Swedish central banker Ingves says he doesn’t see rturn to normal GDP growth until 2011 or later. Fed Hoenig was on the wires with a rather balanced and arguably hawkish statement after saying that while he did not support a tight monetary policy in the current environment, he felt that the Fed would have to remove its very accommodative monetary policy sooner than later. The negative USD press continues into Wednesday, with more articles coming out discussing the end of the greenback, with major economies starting to shift reserves away from US Dollars.  An IMF official has come out saying that he sees no reason for the ECB to hike rates over the next 12 months, while IMF Kato says that the Yen strength is reflective of fundamentals. . Finally, the BOE kicks of its 2-day policy meeting today. US equity futures point to another higher open, while commodities are bid as well on similar themes. Looking ahead to the North American session, the calendar is light, with mortgage applications at 11:00GMT, followed by consumer credit (-$10B expected) at 19:00GMT.

Techs - EUR/USD Rallies have stalled out by the 78.6% fib retracement mentioned in Tuesday’s commentary and a lower top is now sought out by Tuesday’s high ahead of the next downside extension back below 1.4500 over the coming days. However, inability to roll over from here, will negate our bearish outlook, with a break back above 1.4760 to open a retest of the recent 2009 highs by 1.4845. Above 1.4845 then exposes the 1.5000-1.5200 area. USD/JPY Any hopes for a short-term base have been wiped away on, with the market breaking back below 88.25. The break below 88.25 now exposes a retest of the major 87.15 matched trend lows from late 2008 and early 2009. A break back above 90.00 will be required at a minimum to take pressure off of the downside.  GBP/USD The market is in the process of a bearish consolidation with the more likely outcome from here, an eventual drop back below 1.5770 to open a fresh downside extension towards 1.5000 over the coming weeks. However, with the USD still broadly offered across the board, we cannot rule out the possibility for an upside break of consolidation through 1.6130, back towards the 1.6400-1.6500 area.  USD/CHF Has been pulling back quite sharply since rallying to 1.0455 in the previous week. We had been looking for a major base by the recent 2009 low at 1.0185, but this is now in jeopardy with the market currently trading back into the 1.0200’s. The 78.6% fib retrace off of the 1.0185-1.0455 move comes in by 1.0250 and this level represents the last chance for the recovery. Any sustained break below 1.0250 will inevitably open a retest of the 1.0185 yearly lows and potentially parity further down, while back above 1.0325 on Wednesday is required to take the pressure off of the downside.


Written by Joel Kruger, Technical Currency Strategist for
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