IFO survey of business sentiment printed better than expected for the first time in three months lifting the EUR/USD off the session lows in morning European trade. The IFO rose to 93.9 versus 92.6 forecast – a full two point gain from the month prior. The current assessment index also rose to 89.1 from 88.0 projected.
The upside result in IFO was impressive but not surprising given yesterday’s better than forecast PMI readings which continue to indicate that EZ manufacturing and service sectors are recovering at a slow but steady pace despite challenging exchange rate conditions.
The positive IFO news was somewhat offset by an announcement from GM just prior to the release that it plans to cut 9,000 jobs at its Opel subsidiary. Employment stabilization continues to be the key to further EZ growth in 2010. The region has been able to avoid the draconian job cuts seen in the US, by utilizing a variety of job-mitigation and fiscal stimulus schemes, but analysts worry that any slowdown in demand in H1 of 2010 will precipitate another round of layoffs which would snuff out the nascent recovery.
The EUR/USD rebounded off the 1.4900 level in the aftermath of the report trading back to 1.4940 as some of the risk aversion flows from Asia subsided. However, the pair is likely to remain within the 1.4900-1.4950 range until North America comes on line and focus shifts to the first revision of US GDP numbers which could determine if risk appetite will continue as the day progresses.
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The 10% increase in Oct existing home sales was nearly 10 times greater than expected but currencies fail to show any significant shift towards risk plays, as EURUSD remains shy of $1.50, $GBPUSD under at 1.67 and USDCAD above 1.05. The REAL TEST will be tomorrows preliminary (second revision) of US Q3 GDP, expected to be revised to 2.8% from 3.5% (range 2.5%-3.4%). $1.5050 remains a psychological level, while $1.5055-60 is the more relevant resistance, a breach of which this time could coincide with $1,200 gold. A US GDP downward revision of no less than 3.0% would boost appetite at the expense of the USD, especially that Fed officials continue to reiterate prolonged liquidity for a considerable period of time as did Atlantas Fed Bullard. German Nov IFO could also induce moves towards $1.50 in the event of a figure of at least 92.5 in business climate index and 97 in the expectations index.
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Much ink hasbeen spilled over the recent market quiver. The burning question now is: will the fall snowball into a correction?
On one hand, the bears are desparately trying to talk down the market. The key charge they made is that the economy is still in shambles. The soaring deficit and rising unemployment - both in the US and UK - are signs of a deteriorating economy. Moreover, they contend that the market has run ahead of itself, thus opening the doors for a big retracement. The bulls, however, counter with the fact that the worst is over and that the global economy is on track to resume growth by first half next year. Coupled with extremely easy monetary policies everywhere, a sustained recovery in equity markets is therefore achievable.
Picking out the winner among the two camps is difficult. While we have deep sympathies with the bears, it is impossible to ignore the market, especially when it is recovering strongly. Selling into an uptrend is probably not a good idea. However, there are a few risk factors that are worth monitoring. Huge moves in these series could impact equities:
(1) Energy. A sharp rise in crude prices above the current level (around $80), would certainly be bearish for equities (see right).
(2) Bond yields. Still steady, which is good for equities as investors are not overly worried about government finances. Sharply rising government bond yields, however, is not a good sign for equities.
(3) Dollar. The sweet spot for equities, judging from the recent movements, is gently falling US Dollar. A rout in the greenback is bad because it means investors are losing faith in the world’s biggest economy. A rise in the Dollar is also not good for equities since it signals expanding risk aversion. That is, investors are selling risk assets and moving into safe haven.
Overall, these factors are sustaining the bulls’ argument more than the bears, though crude oil’s persistent advance could damage the bull run and trigger a fall in equities, as it did in summer 2008. We will monitor these series actively and assess their medium-term trends.
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Nice Pin bar here, we have Cable failing at a previous support level (becomes resirtance) Stop for me is above 16650 level. I will be looking on shorter time frames for entry.
Nice Pin bar here, we have Cable failing at a previous support level (becomes resirtance) Stop for me is above 16650 level. I will be looking on shorter time frames for entry.
Risk currencies opened higher this morning following strong PMI numbers from Europe and comments from Fed President Bullard. Last week, Bullard suggested that the Fed may not raise interest rates until 2012 and overnight, he called on the Fed to extend its authority to buy Mortgage Backed Securities and Agency bonds beyond March. Although this represents a departure from his typically more hawkish stance, it is important to remember that Bullard is a non voting member of the FOMC. Yet, there is no question that most FOMC members are still very cautious. Evans for example warned that the unemployment rate may not peak until 10.5 percent and not decline until the summer. The more cautious the Fed is, the less likely they are to implement an exit strategy. As a result, traders are selling dollars and buying higher yielding currencies. The dollar carry may be an overused term but certainly not an overplayed trade. We continue to believe that 1.50 will only be a temporary barrier in the EUR/USD and that the U.S. dollar could fall another 5 to 7 percent before it stages a full blown recovery.
Existing Home Sales Jumps 10 Percent
This morning's existing home sales report was very strong with the number of units sold rising by the most since Feb 2007. The 10.1 percent rise is glaring evidence that despite a drop in builder confidence, permits and housing starts, the market for previously owned homes remains hot. The only wrinkle is that units are still being sold at lower prices but that is expected given the current state of the economy and tightness of credit. The average price of a home sold dropped from $221.9k to $218.1k in October.
Canadian Dollar Takes Off After Solid Retail Sales
Meanwhile the Canadian dollar strengthened dramatically following the much better than expected retail sales figures. USD/CAD dropped more than 150 pips and appears poised to test 1.05. The loonie is staging such a strong rally because not only did consumer spending jump 1.0 percent in September but the August data was also revised up from 0.8 to 1.0 percent. This is a testament to the resilience of the Canadian economy that retail sales increased 4 out of the last 5 months and 7 out of the last 9 months. Spending outside of automobiles was also very strong. Retail sales ex autos rose 1.1 percent thanks to a sharp increase in demand for furniture, electronics, food and beverages. Over the past few weeks, we have seen more evidence that the Canadian economy is becoming less sensitive to the U.S. economy, first through the trade numbers and now through retail sales. This means that GDP growth may have turned positive in September which could fuel further gains in the Canadian dollar. The U.S. economy could only hope for the same strength in headline and core retail sales as Canada.
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Ashrafs interview earlier on Bloomberg TV http://bit.ly/5Zq7lI / The limits of risk appetite are being pushed towards 092.90 in AUDJPY, 0.9315 in AUDUSD and 1.6680 in GBPUSD. Oil attempts to regain 80, but once again, it is the importance of having an intraweek high above 80.50 that would suggest a potential break of 5-week downtrend. Gold options strike prices held at $1,200, imposing resistance at 1,190-95.
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ok fellas, i'm new to analysing bias change, but this is what i've been waiting for (and mentioning in the chat room) only i expected the final res point to be around the 5310 area.if this in indeed a long bias change, then the strategy dictates that you would be a buyer of 50%-61% retracement lows (and the opposite of course, i.e. selling highs, for confirmed Short Bias Changes).the chart is 1H TF, but i believe a 4H is normally used (as it's more reliable regarding direction changes).this is the first time i've analysed a bias change and could be incorrect, please only use this for discussion purposes.
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Another Monday Rally in Equities at the Expense of USD & JPY Just as the last 4 Fridays have proven positive for the USD and JPY at the expense of equities and oil, today (as in the last 4 Mondays) proves negative for USD and JPY to the benefit of global equities and oil prices. Japan was closed, Dow futures +90 pts as markets await US Nov existing home sales (exp +2.3% to 5.7 mln) will likely reflect the rise in pending home sales released earlier this month. USDCAD await the 13:30 GMT release of Canadas Sep retail sales (exp +0.6% from +0.8%, core exp -.4% from +0.5%). GBPUSD seen capped at $1.6675-80, while USDCAD risks extending losses to 1.0530, Stronger than exp CAD and US data could seen testing 1.0499s, which is just above the 61.8% retracement of the Nov 16-Nov 20 rally.
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The dollar continued to decline following dovish comments from the US Federal Reserve. St Louis Fed President James Bullard stated yesterday that the central bank should continue with their mortgage related asset purchase programme, as many analysts look for governments to start making clearer their exit strategies.
Existing Home Sales data will give an interesting insight in to the supposed strength of the recovery
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I see resistance for Cable around 16000 and 16615-20 level. Looking at the 15m Chart i will be keeping an eye on MACD for any signs of divergence at these levels.
