| Top 5 | Current | Last | Change
(Pips) | Change
(%) |
| NZDJPY | 64.60 | 69.40 | -480 | -7.43% |
| CADJPY | 83.09 | 87.36 | -427 | -5.14% |
| NZDUSD | 0.7172 | 0.7538 | -366 | -5.10% |
| AUDJPY | 81.04 | 84.89 | -385 | -4.75% |
| EURJPY | 132.64 | 138.14 | -550 | -4.15% |
| Dollar | | | | |
| EURUSD | 1.4721 | 1.5007 | -286 | -1.94% |
| USDJPY | 90.10 | 92.04 | -194 | -2.15% |
| GBPUSD | 1.6441 | 1.6304 | +137 | +0.83% |
| USDCHF | 1.0261 | 1.0086 | +175 | +1.71% |
| USDCAD | 1.0839 | 1.0533 | +306 | +2.82% |
| Euro | | | | |
| EURUSD | 1.4721 | 1.5007 | -286 | -1.94% |
| EURGBP | 0.8951 | 0.9201 | -250 | -2.79% |
| EURCHF | 1.5106 | 1.5137 | -31 | -0.21% |
| EURJPY | 132.64 | 138.14 | -550 | -4.15% |
| EURCAD | 1.5954 | 1.5805 | +149 | +0.93% |
| Yen | | | | |
| USDJPY | 90.10 | 92.04 | -194 | -2.15% |
| EURJPY | 132.64 | 138.14 | -550 | -4.15% |
| GBPJPY | 148.12 | 150.07 | -195 | -1.32% |
| AUDJPY | 81.04 | 84.89 | -385 | -4.75% |
| NZDJPY | 64.60 | 69.40 | -480 | -7.43% |
| Sterling | | | | |
| GBPUSD | 1.6441 | 1.6304 | +137 | +0.83% |
| EURGBP | 0.8951 | 0.9201 | -250 | -2.79% |
| GBPCHF | 1.6870 | 1.6443 | +427 | +2.53% |
| GBPJPY | 148.12 | 150.07 | -195 | -1.32% |
| GBPCAD | 1.7819 | 1.7170 | +649 | +3.64% |
Dollar and yen rode on a wave of deteriorating risk sentiments last week and surged sharply across the board. Stronger than expected Q3 GDP from US triggered some optimism in the markets on Thursday but the impact faded on Friday as stocks ended a strong but rather brief rebound and resumed the fall on Friday. S&P 500 closed the week more than -4% lower at 1036.19 in the end. VIX, the fear index, had the strongest rise in a year to close at the highest level in three months above 30.69. Dollar index managed to extend recent rebound and reached as high as 76.57 before turning sideway. Risk aversion will likely continue to dominate the markets initially this week as Asian markets react to Friday's sharp fall in US stocks. More volatility would be triggered in this important week considering the string of key events including FOMC, RBA, BoE, ECB as well as Non-farm payroll.
While dollar was strong, the Japanese yen was even stronger, boosted by sharp fall in commodity yen crosses, in particular NZD/JPY. Also, yen is additionally supported by BoJ's announcement to exit unconventional measures. The corporate bonds and commercial paper purchase program will be left expired at the end of December as scheduled since crude markets are improving. The program of providing unlimited collateral-backed loans to banks will be extended one last time through March 31.
New Zealand dollar was the weakest currency last week after RBNZ left rates unchanged at 2.5%. The tone in the accompanying statement was less dovish than expected but some what missed market expectations of something stronger. While RBNZ acknowledged recovery domestically and internationally, the bank also mentioned that 'in contrast to current market pricing, we see no urgency to begin withdrawing monetary policy stimulus, and we expect to keep the OCR at the current level until the second half of 2010'. That is, RBNZ might not start tightening again until Q3 of 2010 which disappointed markets which expect a high in the first half.
Canadian dollar was the next weakest currency as BoC continued to stress the risk of strong Loonie to recovery of the economy. In addition, August GDP report was disappointing. GDP unexpected dropped -0.1% mom which suggest that recovery is still fragile and lacks sustainable momentum. The Loonie was also pressured by weakness in crude oil that dropped further away from 82 level.
Euro, Swissy and Aussie also weakened against both dollar and yen and paid little attention to solid data last week. Swissy spiked lower on Friday, possibly from intervention by SNB but the weakness quickly faded. Sterling was relative resilient last week as supported by sharp pull back in EUR/GBP cross.
Looking at the charts, S&P 500 fell sharply last week and broke the medium term trend line support decisively. Medium term rebound from 666.79 should have completed with three waves up to 1101.36 on bearish divergence conditions in daily MACD and RSI. Deeper decline is now expected to be seen to 869.32/956.23 support zone in medium term.
VIX, the fear index, had the sharpest rise in a year on Friday and surged to 30.69. VIX also broke recent high of 29.56 which argues that investors are getting more risk averse.
Looking at global stocks, Nikkei 225 is possibly completing a head and shoulder top (ls: 10170, h: 10767, rs: 10397). The index is vulnerable to gap lower on Monday, which follows weakness in US stocks. And a break below neckline support at 9780 level will confirm the reversal pattern and trigger deeper selloff and an increase in risk aversion.
Shanghai stocks could have completed the three wave consolidation from 2770 to 3278 and steep decline might be seen this week for a test on 2770. Note that weakness in China stocks will have additional impact on Australian dollar.
The above charts argue that global stock markets has possibly completed the medium term rebound after the crash in financial crisis bottomed. Break of near term support levels will likely trigger further sell off and will give additional boost to dollar and yen on risk aversion.
Looking back at the dollar index, rebound from 74.94 extended further last week and the development affirms the bullish case that the index has bottomed out at 74.94. The five wave sequence from March high of 89.62 has likely completed already. Further is expected initially this week and break of 77.47 resistance will confirm this case. In the least bullish scenario, rebound form 74.94 should extend to 38.2% retracement of 89.62 to 74.94 at 84.54. In the most bullish scenario, three wave consolidation from 88.46 has completed at 74.94 too and rise from there represents the long term rise from 08 low of 70.70. The final structure of the rise from 74.94 will provide more information of which case it is.
Currency Heat Map Weekly View
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The Week Ahead
It's an important week that's full of market moving event risks. Development in stock markets would be the background driver in risk sentiments and thus the direction in dollar and yen. Initial weakness in Asian equities is anticipated in reaction to the sharp fall in US stocks and thurs dollar and yen would like open the week firm. Latter development would be driven by the string of important economic data to be released from US. In addition, a number of key events are scheduled in Eurozone, UK, Canada, and Australia which would affect the relative strength and weakness of respective currencies.
In US, FOMC rate decision and statement will be one of the highlights. While rates are expected to be unchanged, markets will be particularly interested in whether the language of keeping rates low for an "extended period" be changed. On the data front, ISM Manufacturing and Non-Manufacturing Indices will provide some guidance to traders in the earlier part of the week. Meanwhile, the employment components in both indices, and ADP employment report will be closely watch as leading indicators to Friday's highly anticipated Non-Farm Payroll. It would be interested to see if US unemployment rate would rose to a 2 digit figure in October.
ECB rate decision and press conference will be the highlight from Eurozone. Main focus will be on whether Trichet would hints on the timing of ending unconventional measures.
Pound has been relatively resilient last week. Nevertheless, it would be vulnerable to another sharp fall considering the risks this week. There has been increased speculation that BoE would expand quantitative easing after GDP disappointment. Markets are expecting BoE to raise the asset purchase program by another GBP 50b to GBP 225b. Manufacturing and Services PMI will also be closely watched.
Canadian dollar has been the weakest major currency in October and dropped even further after GDP disappointment last week. Employment report to be released on Friday will be an important event for the Loonie going forward.
RBA is expected to have another 25bps hike this week but that should be priced in the exchanged rate already. Main focus would be on any hints from the statement on how far the cycle would go.
- Monday: Swiss SVME PMI; Eurozone Manufacturing PMI Final; UK Manufacturing PMI; US ISM Manufacturing, Pending Home Sales, Construction Spending
- Tuesday: RBA Rate Decision; US Factory Orders
- Wednesday: Australia Retail Sales; Eurozone Services PMI Final, PPI; UK Services PMI; US ADP Employment, ISM Non-manufacturing, FOMC Rate Decision; New Zealand Employment
- Thursday: BoJ Minutes; Australia Trade Balance; UK Manufacturing, Industrial Production, BoE Rate Decision; Eurozone Retail Sales, ECB Rate Decision; US Productivity; Canada Ivey PMI
- Friday: RBA Monetary Statement; Swiss Unemployment Rate: UK PPI; Canadian Employment; US Non-Farm Payroll, Wholesale Inventories
USD/CAD Weekly Outlook
USD/CAD's rise from 1.0205 extended further to as high as 1.0846 last week and closed strongly. Initial bias will remains on the upside this week and further rise should be seen to 1.1123 resistance next. On the downside, below 1.0652 support will indicate that a short term top might be in place and bring pull back. But downside is expected to be contained well above 1.0205 low and bring rally resumption.
In the bigger picture, the strong break of 1.0631 resistance and sustained trading above 55 days EMA indicates that a medium term bottom might be in place at 1.0205, with bullish convergence conditions in daily MACD. As noted before, fall from 1.3063 is viewed as a correction to long term rise from 0.9056. Such correction might have already completed with three waves down to 1.0205 already (1.0784, 1.1732, 1.0205). Break of 1.1101 resistance will confirm this case and target 61.8% retracement of 1.3063 to 1.0205 at 1.1971 at least. On the downside, break of 1.0205 will invalidate this view and bring down trend resumption to parity instead.
In the longer term picture, the three wave structure of the fall from 1.3063 to 1.0205 revived the case that it's a correction to rise from 0.9056. Sustained trading above 61.8% retracement of 1.3063 to 1.0205 at 1.1971 will indicate that whole rise from 0.9056 might be resuming for another high above 1.3063.
