| Top 5 | Current | Last | Change (Pips) | Change (%) |
|---|---|---|---|---|
| NZDJPY | 69.41 | 67.29 | +212 | +3.05% |
| CHFJPY | 91.28 | 89.25 | +203 | +2.22% |
| EURCAD | 1.5803 | 1.5459 | +344 | +2.18% |
| AUDCAD | 0.9711 | 0.9505 | +206 | +2.12% |
| EURJPY | 138.21 | 135.47 | +274 | +1.98% |
| Dollar | ||||
| EURUSD | 1.5008 | 1.4904 | +104 | +0.69% |
| USDJPY | 92.08 | 90.89 | +119 | +1.29% |
| GBPUSD | 1.6309 | 1.6354 | -45 | -0.28% |
| USDCHF | 1.0086 | 1.0181 | -95 | -0.94% |
| USDCAD | 1.0531 | 1.0373 | +158 | +1.50% |
| Euro | ||||
| EURUSD | 1.5008 | 1.4904 | +104 | +0.69% |
| EURGBP | 0.9201 | 0.9111 | +90 | +0.98% |
| EURCHF | 1.5138 | 1.5175 | -37 | -0.24% |
| EURJPY | 138.21 | 135.47 | +274 | +1.98% |
| EURCAD | 1.5803 | 1.5459 | +344 | +2.18% |
| Yen | ||||
| USDJPY | 92.08 | 90.89 | +119 | +1.29% |
| EURJPY | 138.21 | 135.47 | +274 | +1.98% |
| GBPJPY | 150.17 | 148.64 | +153 | +1.02% |
| AUDJPY | 84.92 | 83.27 | +165 | +1.94% |
| NZDJPY | 69.41 | 67.29 | +212 | +3.05% |
| Sterling | ||||
| GBPUSD | 1.6309 | 1.6354 | -45 | -0.28% |
| EURGBP | 0.9201 | 0.9111 | +90 | +0.98% |
| GBPCHF | 1.6449 | 1.6649 | -200 | -1.22% |
| GBPJPY | 150.17 | 148.64 | +153 | +1.02% |
| GBPCAD | 1.7172 | 1.6963 | +209 | +1.22% |
Sterling dominated the headline last week and had a roller-coaster ride as expectation on BoE quantitative easing program flip-flopped. While dollar dipped through 1.5 level against Euro, it was mixed in general and managed to close higher against Japanese yen and Canadian dollar. The Japanese yen was the worst performer last week and weakened broadly. Canadian dollar, on the other hand, failed to ride on persistent strength in crude oil and weakened on BoC's comments on intervention.
Fed Beige Book released last week showed that stabilization or modest improvements are seem in housing and manufacturing sectors. However, commercial real estate markets remained weak. There is also little or no price pressures for the moment. Credit quality is having further erosion. Housing data from US was weak with housing starts and rose a mere 3k to 590k in September while building permits dropped 7k to 573k annualized rate. House price index dropped -0.3% mom in August. Though, existing home sales rose strongly from 5.09m to 5.57m in September. PPI unexpectedly dropped -0.6% mom, -4.8% yoy while core PPI also dropped -0.1% mom with yoy rate slowed to 1.8%. Jobless claims unexpectedly rose to 531k.
Euro extended recent rally against dollar and managed to close above 1.5 psychological level last week. Solid data from Eurozone gave some help to the strength of the common currency. Strong rebound in EUR/GBP also helped Euro. Manufacturing PMI and Services PMI improved to 50.7 and 52.3 in October respectively. Germany Ifo business climate also rose to 91.9 in October. Nevertheless, Euro has lost some momentum after breaching 1.5. While there is no indication of reversal, we'd expect a short top term to be around the corner.
Sterling had a roaster coaster ride last week, rallied on speculation that BoE will pause the quantitative easing program in November but was sold off sharply after much worse than expected Q3 GDP report. The less dovish than expected BoE October minutes, which showed unanimous vote to keep rates and the GBP 175b asset purchase campaign unchanged, lifted sterling to an intraweek high of 1.6692 against dollar and 0.8996 against euro. However, sterling's rally halted after disappointing retail sales report which showed 0% growth mom in September. Pound then reversed and fell sharply on Friday after shocking poor Q3 GDP report, which unexpectedly contracted for the sixth consecutive quarters by -0.4% qoq, the longest losing streak since record began in 1950s. Year-over-year rate also disappointed by contracting at -5.2%. The poor GDP report revived speculations that BoE might be forced to extend the asset purchase program in November. Technically, GBP/USD and GBP/JPY both held below key near term resistance level and thus retained the bearish outlook in spite of strong rebound last week. EUR/GBP also held above key support level will retain the bullish outlook. After all, the pound would likely remain pressured leading to November's BoE meeting.
The Japanese yen was broadly lower this week on carry trades as investors are already looking at prospect of rate hikes from some centrals banks going forward. NZD/JPY was the biggest winner last week after RBNZ Governor Bollard said that the strength of NZD won't be impediment to raising interest rates. AUD/JPY also extended recent strength to close higher at 87.87 while EUR/JPY rose sharply to 138.16. USD/JPY also rode on broad based weakens in yen and climbed to 92.04. While yen crosses will likely extend recent rise, the risk of reversal is increasing in case of much overdue correction in global equities.
Canadian dollar was another weaker currency last week on central bank comments. The Loonie indeed closed lower broadly even though oil priced managed to made another high at 82 last week. BoC Governor Carney expressed his concern on the strength of the currency on recovery as well as inflation and stressed that intervention is "always an option". BoC left rates unchanged at 0.25% last week and reiterated the conditional commitment to keep rates low until Q2 of 2010. The accompanying statement, as well as the Monetary Policy Report released on Thursday, noted the threat of rising Canadian dollar to recovery in the economy. On thing to note is that USD/CAD is so far still staying below 1.0590 resistance and another fall could still be seen before it bottoms out.
Looking at the charts, US stocks managed to edge higher last week but failed to sustain gain and closed the week lower. Upside momentum is clearly diminishing as seen in bearish divergence condition in daily MACD in S&P 500. At this point, there is no indication of reversal yet with 1040.92 support intact. But we'd continue to expect further loss of moment in case of another rise and upside would likely be limited by 50% retracement of 1580 to 667 at 1123 and finally bring long awaited correction.
Crude oil turned sideway after edging higher to 82. There is no sign of topping at this moment yet. But as we'd expect rebound from 33.2 to conclude inside fibonacci zone of 76.77 and 90.4, crude oil will likely lose momentum on next rise.
Gold was bounded in sideway trading last week but after all, there is no sign of reversal yet. Current rally could still extend further to 1133 projection target next. As gold has likely resumed the long term up trend, current rise is in favor to continue further to next projection target of 1258 after taking out 1133.
Downside momentum in the greenback was seen diminishing last week. While EUR/USD closed above 1.5 level, the move was note accompanied by rally in the strong AUD/USD, not even USD/CAD. GBP/USD's failure below 1.6740 suggests that more downside is in favor this week. The developments argue that greenback is possibly close to a bottom and this is inline with the view that stocks and crude oil should further lose momentum on next rise and bring long awaited correction. The biggest uncertainty will lie in gold which may extend recent rally after completing the current sideway consolidation.
Dollar index dropped to new 2009 low of 74.94 last week but turned sideway since then. Initial bias remains neutral this week with 4 hours MACD staying above signal line. In case of another fall, we're expecting further loss of momentum and dollar index should draw support from the lower trend line (now at 74.82) and rebound strongly. A break of 75.76 will indicate that a short term bottom is formed and strong rally should be seen to upper trend line resistance at 76.51 first. However, strong break of the lower trend line will target 74.31 support next.
In the bigger picture, dollar index's five wave decline from 89.62 should be near to complete and a rebound is due. Strong support should be seen at around 74.31 support level and bring near term reversal. Though, a break of 77.47 resistance is needed to confirm that a short term bottom is formed and bring rebound to 78.33/81.47 resistance zone. Otherwise, outlook will remain bearish.
| USD | EUR | JPY | GBP | CHF | CAD | AUD | |
|---|---|---|---|---|---|---|---|
| USD | |||||||
| EUR | |||||||
| JPY | |||||||
| GBP |
The Week Ahead
Main focus of the week will be on Advance Q3 GDP report from US. Expectation was rather high with consensus at 3.1% qoq growth which leaves more room for downside surprise. Dollar would likely be supported in case the data missed expectation as stocks would probably use that an excuse to trigger the long awaited correction. Another main focus will be on RBNZ rate decision. While markets are all expecting the bank to keep rates unchanged, focus will be on hints of when RBNZ would start to remove policy accommodation. The accompany statement would possibly trigger some volatility in yen crosses on carry trades. Australian CPI will also be closely watched and any upside surprise there will trigger speculations that RBA would speed up the rate hike cycle for meeting the inflation target.
Other important data to watch include:
- Monday: Australia PPI; German Gfk consumer confidence
- Tuesday: Eurozone M3 money supply; US S&P Case-Shiller price index, Conference Board consumer confidence
- Wednesday: Japan retail sales; Australia CPI; Germany CPI; US durable goods, new home sales, RBNZ rate decision
- Thursday: Japan industrial production; Germany unemployment; Eurozone confidence; US advance Q3 GDP
- Friday: BoJ meeting, Japan CPI, Manufacturing PMI; UK Gfk consumer confidence; Germany retail sales, Eurozone CPI; Swiss KOF; US personal income and spending, Chicago PMI
EUR/GBP Weekly Outlook
EUR/GBP's pull back from 0.9410 extended further to as low as 0.8996 last week but after all it was held above mentioned 0.8983 cluster support (61.8% retracement of 0.8722 to 0.9410 at 0.8985) as expected. Friday's strong rebound and break of 0.9190 minor resistance indicates that such pull back is completed. Initial bias is on the upside this week for a retest of 0.9410 resistance first. Break will confirm that whole rally from 0.8399 has resumed and should target 0.9799 high next. On the downside, however, a break of 0.8996 will now indicate that rise from 0.8454 has completed and bring deeper fall towards 0.8704/8837 support zone.
In the bigger picture, medium term correction from 0.9799 has completed with three waves down to 0.8399 already and rise from there is tentatively treated as resumption of long term up trend. Break of 0.9799 bring rally to next medium term target at 61.8% projection of 0.6535 to 0.9799 from 0.8399 at 1.0416. We'll hold on to this bullish view as long as 0.8704 support holds.
In the long term picture, long term up trend in EUR/GBP might be resuming as correction from 0.9799 has completed at 0.8399. Decisive break of 0.9799 high will confirm this bullish view and target 261.8% projection of 0.5680 to 0.7258 from 0.6535 at 1.0666.
