FOREX TRADING

European Market Update

ING to launch €7.5B rights issue to begin repaying Ducth State

ECONOMIC DATA

(SP) Spain Aug Trade Balance: -€4.5B v -€3.2B prior

(GE) German Nov GfK Consumer Confidence: 4.0 v 4.5e

(CZ) Czech Oct Consumer Confidence: -14.3 v -13.0 prior; Business Confidence: -7.1 v -6.6 prior, Consumer & Business Confidence: -8.5 v -7.9 prior

(SP) Spanish Sept Producer Prices M/M: -0.4% v -0.1%e; Y/Y: -5.4% v -5.0%e

(SW) Swedish Sept Trade Balance: €5.5 v €5.4B prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

In equities: Equity markets in Europe bounced off a mixed closing on Friday’s session moderate trading gains. This action followed a broadly positive Asian trading session the included market holiday’s for New Zealand and the Hang Sang. Weekend and pre-market corporate news was dominated by the financial sector with further commentary on the timing of a speculated £23B capital raise out of Lloyds [LLOY.UK] and speculation that RBS [RBS.UK] was looking to lower its involvement in the APS. In the premarket, ING [INGA.NV] announced the results of EC negotiations over state aid that will involve a €7.5B rights issue, and the total spin separation of the groups banking and insurance operations by 2013. In earnings news, Scania [SCVB.SW] continued the trend started by Volvo [VOLB.SW] by slightly beating expectations and trading higher. Merck KgA [MRK.GE] reported its Q3 broadly in line with expectations and clarified its FY09 expectations for group and unit revenues, shares traded lower from the open by approx €2. Equities traded lower from their opening levels through the morning session with weight specifically in the Financial sector.

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Markets Moving Slowly In Asia

Overall, the major pairs opened the session showing slight dollar strength. However the strength was short-lived as the pairs close the gaps from the weekend. Most of the major pairs are still trading near all time highs against the dollar. The Australian producer price index was released today with a reading of 0.1 percent which is lower than the expected 0.3 percent.

The euro (Eur/Usd 1.4995) opened the new trading week 13 pips lower denoting dollar strength over the weekend. The pair has been trading below the neutral swing point at 1.5015 while finding slight support in the 1.4985 area. More support will be seen in the 1.4950 area which coincides with the S2 swing level while resistance remains at the 1.5060 level.

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Daily Technical Analysis

EURUSD Outlook

The EURUSD bullish momentum was paused on Friday. This may caused by a profit-taking activity on the weekend but some people, including me, start to worry about potential downside correction or even a bearish reversal. Like I said in my weekly summary on Saturday, beside the pair can not really move above 1.5000 area consistently, we also have a CCI bearish divergence on daily chart which potentially trigger bearish momentum.

However, technically the bullish scenario is still intact. As long as the bullish channel on my h4 chart below still valid, the bullish scenario should remains strong. We seem to have a downside pressure as price now testing the lower line of the bullish channel which has been a good support so far. Although not automatically set up a bearish reversal scenario since false breakout/down do happen, a violation to the downside of the bullish channel could be a serious threat to my bullish outlook testing 1.4920 even key support level 1.4850 area. Immediate resistance at 1.5050. Break above that area should trigger further bullish continuation targeting 1.5140 and 1.5300 area.

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Stock Market Correction Could Support USD

The dollar rose on Friday as US stocks consolidated recent strong gains and risk appetite moderated. US existing home sales rose to the highest level in more than two years. The S&P 500 index declined 13.31 to 1,079.69 despite strong earnings from Microsoft and Amazon. The yen fell to the lowest level in a month. The euro closed below the 1.50 handle but gained for a fourth consecutive week. Sterling plunged and closed modestly lower for the week after UK Q3 GDP unexpectedly declined for a record sixth time. The Australian dollar fell for a second day as commodity prices eased. Despite today’s decline, the aussie gained for a fourth straight week to the highest level since August 2008. The Canadian dollar fell today and for the week as the Bank of Canada warned about the high value of the loonie. The EUR/JPY, rising for a 12th consecutive day, is making a possible tipple top.

The dollar index rose from a 14-month low on Friday. The index, inversely correlated with the US stock market, has been falling since the stock market made a bottom in March. Exceptionally low US interest rates are weighting on the greenback as investors fund risky assets in low interest dollar loans. At the beginning of the financial crisis, the dollar appreciated and stock prices fell. It is difficult to determine whether the dollar’s appreciation overvalued assets or falling asset prices appreciated the dollar as investors repatriated funds to safe US papers. However, the correlation is clear and consolidation in the overbought stock market may mean an appreciation of the dollar.

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USD Holds Gains, Existing Home Sales Surge 9.4%

• USD: Higher, existing home sales surge 9.4%, equity markets trade lower as the data at fails to lift stocks
• JPY: Lower, BOJ forecasts that deflation pressures will continue into 2011
• EUR: Lower, EU composite PMI rose to a 22 month high, gains in cross trade to GBP
• GBP: Lower, UK Q3 GDP posts a surprise decline, early withdrawal of stimulus unlikely
• CAD and AUD: AUD & CAD lower, Australia’s import/export prices decline, BOC says intervention an option

Overview

USD traded mixed Friday with GBP sharply lower and EUR trading at a new high for 2009. GBP was pressured by report of an unexpected decline in UK Q3 advance Q3 GDP and the EUR was supported by gains in cross trade to GBP and in reaction to report that EU composite PMI rose to a 22 month high. Today’s economic data from Europe shows that the UK economy is still in recession and the EU economy is emerging from recession. The unexpected decline in UK GDP may force the BOE to consider expanding quantitative ease. JPY traded lower pressured by a BOJ report which says that deflationary pressures will continue through 2011. Commodity currencies traded lower despite firmer equity trade in Europe with the CAD pressured by a statement from BOC Governor Carney that intervention is an option and AUD pressured by report of falling Q3 export and import prices. US existing home sales came in much stronger than expected. The USD traded higher in reaction to the strong housing data as the trade debates how much of an impact the expected expiration of the tax credit for first home buyers impacts existing home sales. Some may argue the strength of today’s existing home sale report reflects the pulling forward of home sales because of the tax credit and that when the tax credit expires demand for homes may drop in the same way the demand for autos declined after the expiration of the cash for clunkers program. Bloomberg reports that Nomura research warns that US risks a lost decade like Japan if stimulus is withdrawn too soon. Upcoming US auto and existing home sale data will be a good test of the efficacy of the Nomura warning. At some point the private sector will have to carry the US recovery as government incentives and low prices are the main reason exiting home sales have improved. USD may benefit from speculation that today’s strong US housing data increases the risk of an earlier Fed rate hike. The Fed’s Plosser said he will be one of the Fed members to call for an earlier rate hike.

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European Market Update

UK remains in recession with weaker-than expected Q3 GDP data; Continental European Manufacturing PMIs moves above the growth level

ECONOMIC DATA

(FR) French Sept Consumer Spending M/M: 2.3% v 0.5%e; Y/Y: 1.0% v -0.4%e

(FR) French Oct preliminary PMI Manufacturing: 55.3 v 50.1 v 49.6e (highest reading in 35 months); PMI Services: 57.8 v 54.0e (highest reading in 20 months)

(AV) Austria Aug Industrial Production M/M: 2.0% v -0.9%e; Y/Y: -10.0% v -10.6% prior

(SP) Spanish Q3 Unemployment Rate: 17.9% v 18.7%e

(GE) German Oct Advance PMI Manufacturing: 51.1v 50.1e; 52.5e; PMI Services: 50.9 v 52.5e

(NV) Dutch Aug Consumer Spending: -3.5% v -2.3% prior

(TT) Taiwan Sept Industrial Production Y/Y: +1.0% v -4.9%e; Export Orders: -3.0% v -6.3%e

(EU) Euro-Zone Oct Adv PMI Manufacturing: 50.7 v 50.0e; PMI Services: 52.3 v 51.3e; PMI Composite: 53.0 v 51.6e

(GE) German Oct IFO-Business Climate: 91.9v 92.0e; Current Assessment: 87.3 v 88.0e; Expectations: 96.8 v 96.2e

(PD) Polish Sept Retail Sales M/M: -0.7% v 0.7%e; Y/Y: 2.5% v 4.0%e

(PD) Polish Sept Unemployment Rate: 10.9% v 11.0%e

(UK) Q3 Adv GDP Q/Q: -0.4% v +0.2%e; Y/Y: -5.2% v -4.6%e

(UK) Sept BBA Loans for House Purchase: 42.1K v 39.3Ke

(UK) Aug Index of Services 3m3/m: -0.1% v 0.1%e

(EU) Euro-Zone Aug Industrial New Orders: 2.0% v 1.2%e; Y/Y: -23.1% v -22.5%e

(MA) Malaysia Sept CPI Y/Y: -2.0% v -2.0%e

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Daily Technical Analysis

EURUSD Outlook

The EURUSD attempted to push lower yesterday but found support at 1.4943, whipsawed to the upside, topped at 1.5037 and closed at 1.5025, indicating bullish momentum remains strong and downside corrections might be over at this phase. I dont’ trade corrections, but I love them

My bullish channel on h4 chart below has been a very useful technical tool for me as bullish momentum still move perfectly inside the bullish channel with the lower line provide good technical support area. The bias remains bullish in nearest term still targeting 1.5080 and 1.5140. Key support level remains at 1.4950/60 area and the lower line of the bullish channel. Short position is not recommended.

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Weak Dollar Is The Price To Pay

The argument about a lower value dollar, or whether there actually is a strong-dollar policy in the U.S. will move on until such time that all and sundry agree on one thing; The political will to address the dollar index weakness is the only question here, and in reality the internal U.S. markets seem oblivious to the ravages of a weaker dollar overseas.

Global central bankers accepted the massive injection of Usd based liquidity that hit the global market after Lehman collapsed, and have to accept the trading arena may not even be here, and if it were, would certainly look different than it does now, without the massive printing of Usd notes.

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USD Higher, Disappointing Earnings Pressure Stocks

FX Highlights

• The USD is trading higher supported by a drop in risk appetite as equity markets slide and by a report that China may begin to withdraw stimulus, Japanese exports fall more than expected in September, UK retail sales flat, BOE’s Tucker says quantitative ease may be expanded if needed, China’s third-quarter GDP came in close to expectation, commodity currencies lower tracking weaker equity markets
• Focus turns to today’s release of US jobless claims and leading indicators
• Japan’s September trade surplus narrows to ¥520.6 bln, exports fall 30.7%, imports fall 36.9%, BOJ considering an exit from its bond support plan, JPY lower (more…)

FX Thoughts for the Day

USD-CHF @ 1.0072/75…Holding Short. Tighten Stop

R: 1.0101-13 / 1.0134-35 / 1.0184-93
S: 1.0031 / 0.9928 / 0.9886

Dollar-Swiss did correct towards 1.0122 during the day beyond the Resistance zone indicated in the morning. It has however come down now after the second level Resistance of 1.0121-34 held on. It can now come down further towards the Projected Max Low for the day at 1.0031 during the US session as was mentioned in the morning.

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Daily Technical Analysis

EURUSD Outlook

The EURUSD continued it’s bullish momentum yesterday, topped at 1.5045 and closed at 1.5007. The bullish power succeed to pass the test and move above critical area 1.4850 – 1.4950. I think we are now entering a new phase of a bullish scenario with 1.6000 area as potential long term technical target. A look at my daily chart below reveals my reason. On February 2008, after prevented further upside momentum by being a strong resistance area for a few months, 1.4950 level became a starting point of a new bullish phase which peaked at 1.6000 area on April 2008 once it broken to the upside.

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New Yearly Highs For Major Pairs

Overall, the overnight session was flat, in-line with the last two trading sessions, with the major pairs failing to move anywhere importantly, except for the pound. Continuing on the same pattern as in the last few days of trading, most of the moves were concentrated during the U.S. session, which proved to be volatile due to the movement observed in the S&P futures market.

Dollar Index Technical View: TheLFB Member Charts

Daily chart trend: Short. Main price points: 75.00. Looking for: Ending diagonal

Prices on the dollar index have reached new lows recently, which means that the final push of an ending diagonal is in progress. The market looks to be targeting the 75.00 support region, where an ending diagonal of a red wave V may be completed. If this is the case then traders should be looking for a long turning point, especially once the upper line of diagonal is taken out.

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European Market Update

Key US earnings continue to flow; BOE stands united in holding its QE measures at £175B

ECONOMIC DATA

(TH) Thai Central Bank leaves Interest rate unchanged at 1.25%; as Expected

(SZ) Swiss Sept Money Supply M3 Y/Y: 7.8% v 7.4% prior

(SZ) Swiss Q3 Real Estate Index Family Homes: 365.9 v 362.3 prior

(NV) Netherlands Oct Consumer Confidence: -16e v -17 prior

(UK) BoE Minutes: MPC voted 9 to 0 to maintain both Quantitative Easing at £175B and interest rates at 0.5%

(SP) Spain Q3 Business Confidence: -21.5 v -19.0 prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

In equities: European markets opened well bid but this positive momentum had waned with markets turning negative by 4:00EST. In corporate news, some long-standing epics came to a close with Ferrovial [FER.SP] BAA unit coming to an agreement to divest its Gatwick airport. In other sagas, a new page was turned as Cadbury [CBRY.UK] raised the stakes with its Q3 report by reporting increased sales and higher 2009 guidance. Deutsche Bank [DBK.GE] surprised the market with a limited Q3 pre-release, putting its net well ahead of expectations. DBK, after opening higher, quickly turned negative as pundits and traders questioned the necessity of the release with speculation running rampant as to what the bank was planning. In another Baltic banking miss, SEB [SEB.SW], like its rival Swed Bank [SWEDA.SW] missed its targets and traded lower. In other notable releases, BHP [BHP.AU] provided a Q1 production update that lacked FY09 iron ore targets. Auto firm Peugeot [UG.FR] reported its Q3 and likewise failed to provide any full year guidance. Equity markets continue to anticipate a wave of US reports expected during the NY morning including BA, NOV, WFC and MS. In sector movements, Industrials, Financials and Basic Materials led the EuroStoxx lower into 5:30EST on mixed volumes.

In individual equities: Deutsche Bank [DBK.GE] Reports prelim Q3 Net €1.4B v €822Me, Pretax €1.3B v €1.15Be. Expects to see Tier 1 cap ratio at 11.7% v 11.0% q/q. || SEB Bank [SEBA.SW] Reports Q3 Net SEK38M v SEK419Me (unclear if comp); Rev SEK9.74B v SEK10.5Be. Credit loss provisions at SEK9.29N v SEK5.95B q/q. || Cadbury [CBRY.UK] Reports Q3 Sales +7% y/y , raises FY guidance. || BHP BHP.AU : Reports Q1 iron ore output 30.1M tons (record output) v 29.8M y’y; believe China restocking of commodities is essentially complete; Sees restocking in developed economies, especially in steel. || Home Retail [HOME.UK] Reports H1 Rev £2.8B v €2.8Be. LFL sales at Argos -2%, LFL at Homebase +3%. ||Sainsbury [SBRY.UK] Qatar Holdings may increase 26% stake – FT. || Peugeot [UG.FR] Reports Q3 Rev €11.8B v €12.8B y/y. || PPR [PP.FR] Reports Q3 Rev €4.6B (-8.0% y/y). ||

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Daily Technical Analysis

EURUSD Outlook

The EURUSD made another correction yesterday. The pair attempted to push higher, topped at 1.4993 but whipsawed to the downside, bottomed at 1.4881 and closed at 1.4936. On h4 chart below we can see that this was a case of a false breakout, which potentially produce significant downside correction. 1.4850 area and the lower line of the bullish channel are my important support area. As long as the pair stay above that area the bullish scenario should remains strong. Any movement below 1.4850/30 could trigger further significant bearish correction towards 1.4760/20 area and could be a potential threat to my bullish outlook. Technically I don’t have any good sign of a bearish reversal so far, so short position still not recommended. The bias is neutral in nearest term and we might have another downside correction and but overall I still prefer a bullish scenario with 1.5300 as potential target. I think we are in transition phase with 1.4850 – 1.4950/1.5000 area as critical area, so volatility and hesitation in the market are actually normal.

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