FOREX TRADING

USD Lower, UAE Offers to Provide Liquidity to Dubai

FX Highlights

• The USD is trading lower as UAE Central Bank provides emergency liquidity to Dubai and global equity markets trade mixed, risk appetite improves as the UAE action helps to provide stability to the financial markets reducing fears of contagion from the Dubai debt crisis, GBP trades mixed initially pressured by report of a unexpected decline in UK consumer confidence with downside limited by report of an increase in mortgage approvals, EU consumer prices rise more than expected in November, JPY higher despite Japanese threats to take action against the JPY rise, commodity currencies trade higher as risk appetite improves and fears of significant fallout from the Dubai debt crisis fade
• Focus turns to today’s release of Chicago PMI and Canada’s IPPI/ RMPI and GDP
• Japan’s October industrial production rose 0.5%, November manufacturing PMI falls to 52.3 from 54.3 last month, October housing starts fall 27.1%, Japan’s PM says that Japan should act swiftly in regard to the Yen rise, Japan’s National Strategy Minister says the Japanese government has agreed to try to stop the JPY’s appreciation, JPY higher (more…)

UK’s Mortgage Approvals Rises To The Highest In 18 Months, While CPI Beat Estimates In The Euro Zone

Today U.K. released important data reflecting the economic situation in the economy after the improvement signaled recently. The British economy managed to moderate the pace of contraction in the third quarter to 0.3% from 0.6% in the second quarter thanks to the stimulus measures adopted by the BoE to stall the deterioration.

Mortgage approvals for October, after touching its highest in 18 months in September, it continued its upside rise in October to from 56.2 thousand. It seems that the housing market which was responsible for the crisis is emerging from a rout.

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Daily Technical Analysis

EURUSD

The pause in Euro rally triggered by Dubai World debts payment delay so far expected to be temporary as after hit bottom at 1.4827, Euro recovered quickly, closed much higher at 1.4985 on Friday and the trendline support still did a good job prevented further bearish attack thus technically keep the bullish scenario intact, especially if price able to move consistently above 1.5062 today, which is technically potential to be tested after rebound from 1.4827. However, note that the false breakout from 1.5062 area (see my daily chart below) also hide a potential bearish view and price could make another downside attempt testing the trendline support and 1.4827 once again, especially if price break below 1.4920/00 area today. No one knows whether the impact of Dubai World is only a temporary panic reaction last week or will continue to shake world stocks market thus could bring the Dollar higher this week. The bias is bullish in nearest term testing 1.5062. Valid break above that area should trigger further bullish momentum towards 1.5140/50 area

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UAE Central Bank Steps In To Help Dubai

U.S. Dollar Trading (USD) was extremely volatile as stock markets around the world went on a roller coaster ride with Asia stocks down over 3% and then European and US stock recovering late in the day. Large stops across the board sent EUR, AUD, Gold and Oil plummeting at the European opening but with Analysts calling the Dubai crisis not as bad as some feared and speculation that Abu Dhabi will step in and help its smaller state, the markets mood recovered from fear and panic. DJIA -154 points closing at 10309, S&P -19 points closing at 1091 and NASDAQ -37 points closing at 2138. Looking ahead, November Chicago PMI forecast at 53.7 vs. 54.2 previously.

The Euro (EUR) broke through 1.4900 at the height of the panic and fell quickly to lows of 1.4830 before recovering with Gold and Oil. EUR/JPY was extremely volatile as the pair tracked USD/JPY lower to 127 Yen before recovering to close at 129.50. Overall the EUR/USD traded with a low of 1.4830 and a high of 1.5025 before closing at 1.4990. Looking ahead, November EU Inflation forecast at 0.4% vs. -0.1% previously.

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FX Technical Commentary

Euro 1.5000

Initial support at 1.4802 (Nov 20 low) followed by 1.4702 (Nov 4 low). Initial resistance is now located at 1.5020 (Nov 27 high) followed by 1.5144 (Nov 25 high)

Yen 86.60

Initial support is located at 85.00 (key level) followed by 84.80 (Nov 27 low). Initial resistance is now at 87.48 (Nov 26 low) followed by 88.01 (Oct 7 former low).

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USD Erases Some Gains, Markets Rebound from Lows

• USD: Higher, erases some gains as markets recover from early lows, overreaction to Dubai World news
• JPY: Lower, trades at 14 year high versus USD, Japan steps up threat of intervention
• EUR: Lower, EU economic and business sentiment rose for the eighth consecutive month
• GBP: Lower, Dubai may be forced to sell UK assets, BOE’s Posen and Bean expect UK growth in Q4
• CAD and AUD: AUD higher, CAD lower, tracking commodity prices and equity markets, gold off lows

Overview

The USD traded higher Friday supported by safe haven demand sparked by fears about a Dubai debt crisis. Two major Dubai firms seek to delay debt payments ahead of plans to restructure Dubai World. Dubai World’s debt is estimated at 80 to 90bln. Dubai is seeking to raise billions in bonds to repay the debt and has asked for a temporary standstill from its creditors. The Dubai World news surprised investors and fueled a reduction in risk exposure.

JPY surged to a 14 year high versus the USD supported by safe haven demand sparked by concern about a Dubai debt default. JPY upside was partly limited by threat of intervention and rumors that the BOJ was checking for rates. Commodity currencies traded lower pressured by weaker crude and gold prices with crude initially tumbling $4 a barrel and gold dropping by 2%. The decline in commodities was attributed to a spike in risk aversion generated by concern that the Dubai debt crisis could spark a new global financial crisis.

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Canada’s Current Account Deficit Hits Record High

The current account deficit was C$13.1 billion in the third quarter, slightly smaller than market expectations. The second-quarter deficit was revised to C$11.9 billion from the previous estimate of C$11.2 billion. A widening in the goods deficit more than offset a marginal narrowing in the services deficit and smaller investment income shortfall.

Canada’s traded goods balance moved further into deficit in the third quarter as the increase in exports was significantly slower than the rise in imports. This increase in the deficit marked the second quarter in a row that the goods account has been in deficit.

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Euro Zone Confidence Continues Up The Ladder

Confidence levels around the euro zone continues to improve which is what the European Central Bank (ECB) President Jean-Claude Trichet was projecting especially as the 16-nation region is showing increasing signs of recovery while the zone expanded by 0.4 percent in the third quarter.

The euro zone business climate indicator rose to -1.56 from revised prior -1.79 from -1.78 which is higher than the forecasted -1.65. Consumer confidence for November improved to -17 which is better than the prior -18 inline with expectations

Economic confidence rose to 88.8 from revised 86.1 from 86.2, higher than the expected reading of 88.0, this reading marked the highest level since September 2008. As consumers have higher confidence in the euro zone outlook is a good sign for the economy, since this might mean higher spending because consumers usually tend to spend when they are confident with the outlook.

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Daily Technical Analysis

EURUSD

Yesterday I said that EURUSD need a consistent move above 1.5150 resistance area to continue bullish towards 1.5300. The fact was, price never got higher than 1.5150 and bullish momentum was rejected. I was right at this point until price unexpectedly made further bearish momentum, fell below 1.5062, bottomed at 1.4959 and closed at 1.5006. I have to admit and realize that my technical study was completely a mess. After broke above 1.5062 and topped at 1.5143 on Wednesday, I thought a movement towards 1.5300 should not be that hard. Well, my 1.5150 bullish target area was easily hit, but my second bullish target around 1.5300 was not. Technically the bias reverse to bearish, especially in nearest term with 1.4920 support area to be tested. Break below that support level should trigger further bearish momentum towards 1.4850/20 area, but as long as the bullish trendline support hold (see h4 chart below), the bullish scenario in longer term remains intact, especially if price able to break above 1.5062 today, testing 1.5150 area once again. Note that bearish reversal scenario warning is now can not be ignored especially if we have further bearish below 1.4820 with 1.4625 and 1.4450 as technical target. I think I will stand aside for now as situation is very tricky, but probably consider about open long position if price move near trendline support area or 1.4850/20 area today with tight stop loss.

On fundamental point of view, the risk aversion came back into play yesterday. Bloomberg reported that Dubai World proposal to delay debts payment shook investor’s confidence. Stocks in Asia, US and Europe dropped significantly while Yen and Dollar benefited from this situation. Well, I think it’s the time that we should not be too optimistic about global economic recovery. It’s true that we have some significant improvement and have good reasons to be optimistic, but things are just still far from being stable and investor’s panic selling on Dubai World debts payment delay prove that. The Japanese Yen is the most currency appreciated in this situation, lead ‘safe heaven’ currencies strengthen. However, I am concern about possible intervention by Japanese government to weaken the Yen as traders may respond to it thus potentially wane the Yen and Dollar rally.

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High Beta Currencies Follow Equity Markets Lower

Despite a meager data schedule, the FX markets have experienced relatively large moves over the course of the day as the unwind of positions ahead of year end were exaggerated by thin liquidity conditions. Equities are sharply lower across Europe and Latin America, and even gold has sold-off markedly from its $1195 highs to trade at $1184 levels.

After the excitement of the moves in the Asian session that saw major technical barriers breached, the USD has made a recovery against virtually all of its major and EM peers; with the exception of the JPY, where selling pressure has kept the pair subdued around 86.50 levels. The hardest hit currencies have been the high-yielding AUD and NZD which are both down around 2.5% on the day, and much has been attributed to the unwind of cross-JPY positions ahead of the year end.

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Equity Sell-Off Empowers The Dollar Bulls

Overall, the sell-off from the equity markets had a major influence on the pound and on the aussie, but interestingly, it had only limited effects on the euro and swissy. Driven by risk-aversion, the yen broke below the 86.00 area, to reach the lowest value since 1995.

Thanksgiving Day has been historically very quiet in the financial markets over the last four years of trading, but today it proves to be a huge exception. Ahead, the market has some major uncertainties since the U.S. session is closed, but the volatility seen throughout the European session might attract some major players into the futures market.

Dollar Index Technical View: TheLFB Member Charts

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United Kingdom’s Pound and Stocks Decline Due to Dubai’s World Delaying Debts

Dubai World, one of the key investment companies in Dubai, which is owned by the government, requested to postpone paying its debt to creditors until May of 2010; with liabilities worth $59 billion. The company was negatively affected by the credit crisis, which was believed to be the worst credit meltdown since the Great Depression.

The company has to pay back $3.5 billion next month, and the delay led to major credit rating agencies lowering government intervened companies. Borse Dubai Ltd. is the biggest shareholder of London Stock Exchange Group Plc. and due to the delay, we saw United Kingdom gilts climb as demand rose; while the pound and stocks plummeted heavily as investors turned to safer assets.

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Daily Technical Analysis

EURUSD Outlook

Finally, we have significant technical break on EURUSD. As you can see on my daily chart below, price break above the peak at 1.5062, topped at 1.5143 and closed at 1.5136. If you remember my technical study on November 12, I said about two double top scenarios: valid or failure scenario. When a chart formation fails, I believe the opposite scenario is in play. If the bearish reversal scenario fails, the bullish continuation is in play. So, whether a chart formation fails or valid, I always have a clue. Isn’t that great? I am in buy mode now, targeting 1.5300 area. We have an important resistance around 1.5150 area and need consistent move above that area before aim for 1.5300. Immediate support at 1.5090 followed by 1.5062. As long as price able to stay above 1.5062, the bullish scenario should remains intact. CCI in overbought area and heading down on h4 chart, so watch out for potential minor downside pullback.

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Gold Rush Continues

U.S. Dollar Trading (USD) with the FOMC minutes confirming a low rate outlook for some time the market took this as a signal to sell the USD and during the day key levels were broken across the board whilst Gold continued to surge higher. October Durable Goods Orders were -0.6% vs. 2% previously. Also released, Weekly Jobless Claims at 455k vs. 501k previously. In US Stocks, DJIA +30 points closing at 10464, S&P +5 points closing at 1110 and NASDAQ +7 points closing at 2176. Looking ahead, Thanks Giving Holidays.

The Euro (EUR) Broke through the Key 1.5000 in late Asia and then kicked on to break major resistance and year highs at 1.5060 in the US session to finish the day at 1.5140. Broad USD weakness and strength in Gold and Oil helped underpin the move higher which opens up potential further gains. Overall the EUR/USD traded with a low of 1.4960 and a high of 1.5146 before closing at 1.5130. Looking ahead, October Private Loans are forecast at -0.5% vs. -0.3%.

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USD Sinks to 15 Month Low, Jobless Claims Drop Sharply

• USD: Lower, FOMC signals rates will remain low for an extended period, jobless claims drop sharply
• JPY: Higher, Japan’s export sales improve, Sakakibara says JPY may fall to 85.00
• EUR: Higher, ECB may announce details of exit strategy at the December policy meeting
• GBP: Higher, Q3 GDP revised up slightly
• CAD and AUD: AUD & CAD higher, RBA rate hike speculation, Russia to add CAD to its reserves

Overview

The USD traded sharply lower Wednesday dropping to a 15 month low pressured by a number of factors. The main catalyst for today’s USD decline was confirmation in Tuesday’s release of the FOMC minutes for the November policy meeting that the Fed plans to maintain a low level of interest rates for an extended period. The FOMC minutes also stated that the Fed sees the USD depreciation as “orderly.” This statement is seen by some as a green light to sell the USD as the Fed indicates that it has no plans to support the USD.

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