Wednesday, March 9, 2011

Forex Exchange Morning Report

The previous day's risk aversion theme continued, with Libya and oil continuing to frighten investors. The S&P500 is down 1.1%, looking vulnerable. WTI oil futures rose 1.2% to a fresh 2/1/2 year high, now technically overbought. Fresh multi-year highs also in gold (+0.1%) and silver (+1.4%) boosted the CRB index to a fresh high, but copper (-3.5%) reversed sharply. US 10yr treasury yields reversed sharply from 3.55% around midday NY, coinciding with the fall in US equities, and are now 2bp lower at 3.47%. There was mixed Fedspeak from Lockhart (QE3 is possible), Evans (QE2 should not be curtailed), and Fisher (opposed to QE3 and QE2 could be curtailed). Moody's downgraded Greece three notches from Ba1 to B1, assigning a negative outlook. Its 10yr government bond yield rose 8bp to 12.33%, while the 2yr bond rose 41bp to 15.92% - a post-May high. Portugal's 10yr rose 8bp, near a decade high, but the other Eurozone peripherals were unruffled.

The US dollar index is slightly higher, falling in London to a fresh four-month low but bouncing in NY, mirroring the decline in US equities. EUR rose to a four month high of 1.4036 during London's morning, but reversed all of that to 1.3960 in NY. GBP underperformed, falling further from its noon peak of 1.6340 to 1.6183, and forming a technically bearish key reversal pattern. Safe-haven yen outperformed, USD/JPY between 81.95 and 82.30.

After peaking at 1.0186 midday London, pro-risk AUD fell sharply to 1.0091.

NZD's fall from 0.7402 to 0.7350 was less severe, probably because much bad news has already been priced in. AUD/NZD made a fresh decade high of 1.3794 before falling to 1.3715.

Fedspeak: QE3 can't be ruled out yet but QE2 may not be seen through to the end. Atlanta Fed president Lockhart says the Fed shouldn't rule out asset purchases beyond June: “given the emergence of new risks, I prefer a posture of [policy] fl exibility”. Meanwhile Dallas fed's Fisher remains doubtful about the effi cacy of QE2 and said he might vote to curtail it and would vote against extending or enlarging purchases “barring some frightful development”. Chicago Fed president Evans said the hurdle for altering the current program is pretty high.

Euroland Sentix investor confi dence rose from 16.7 to 17.1 in Mar, the highest since 2007. Current conditions rose but expectations slipped, with rising oil prices cited as a driving factor.

Canadian building permits fell 5.1% in Jan. The residential component was down 0.9% but non-res dropped by 13.2%.

AUD/USD and NZD/USD outlook next 24 hours: AUD is starting to threaten the lower boundary of its multi-month consolidation, today's ceiling at 1.0200 with a move to 1.0030 more likely. NZD is again testing major support at 0.7350, a break lower likely, 0.7270 the next target.

Events Today

Feb NFIB Small Business Survey Mar IBD-TIPP Economic Optimism Feb Bank Lending (Adjusted) %yr RBA Assistant Governor Lowe speaking 

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