| Daily Forex Fundamentals | Written by Saxo Bank | Nov 19 08 07:40 GMT | | |
| Is bond rally spelling trouble for risk appetite? TICs data shows huge move into USD in September. LATEST HEADLINES
THEMES TO WATCH - UPCOMING SESSION
Market Comments The latest rounds of inflation data are showing inflation decelerating even faster than anticipated. The UK CPI fell -0.7% on an annualized basis in a single month and the RPI fell at the fastest rate in 20 years. The headline US PPI fell a full percentage point in October, from 6.2% to 5.2%. The talk has quickly shifted to deflation, which is certainly a significant risk in the near term with powerful asset deflation, commodity deflation and plummeting consumer demand conspiring to compel a slowdown in inflation. The US Christmas shopping season will likely see retailers chopping prices deeply to get customers into the door and today Marks and Spencer, a large British Retailer, announced a one-day, 20% off everything sale. A look over at the white hot government printing presses and endless stimulus plans that are in the pipeline should reassure us that the last thing this will end with a few years down the road is deflation - as a reversion to inflation is far more likely eventually. For now, however, deflation reigns and the inflation data is a clear argument for the major central banks to all lower their rates to essentially zero in the coming quarters. This will continue to weigh on the carry trades and favor the USD and the JPY. Nervousness in equity markets was almost palpable yesterday. the S&P 500 toyed with the idea of testing the 818 low on the Dec. Future, but rejected the sell-off once again, this time ahead of the low, and rallied sharply into the close (after two days in a row of swooning sharply into the close - no easy patterns here.) Likewise, JPY crosses tested lower and the USD a bit stronger as a well before easing back after the rally in risk. The persistent rally in fixed income is giving the JPY a tailwind as falling interest rate spreads between the rest of the world and Japan tend to do. So as consolidation ranges constrict in EURUSD and EURJPY and the market wrings its hands wondering what to do next, we wait and watch the major equity index levels for signs that a new meltdown is in the works, which is still our preferred scenario until proven otherwise. This would trigger a new leg up on the USD and the JPY. 8000 on the Dow cash index and that 818 level on the S&P500 future are interesting levels to watch. For the major currency pairs, pull up a daily chart and a 21-day simple MA, which has become the latest obsession whether you are looking at EURUSD, EURJPY, USDJPY, or AUDUSD. In the absence of directionality over the last several days, this technical level has become an intense focus. The danger is that it suddenly becomes worthless as we suspect that it is a bit of a self-fulfilling technical level at this stage. Once real flow hits the market due to a new capitulation in equities or a huge rally instead, the MA will fade in importance. Still a break above this level and a hold into the close would be a significant technical development here and now. The US TICs data showed a huge growth in USD positive flows and the October number is likely to be much larger. The number reflects changes in banks' dollar holdings and a range of other net capital flows into the USD, including the net purchase of $66 billion in long-term US securities. Unfortunately, the data is released so long after the fact that this number usually only helps to explain why certain moves happened for the month in question. Be careful out there, the potential for volatility is every bit as high as it has been at any part of the recent cycle and the relative calmness we have seen of late could be the calm before an intense new storm once these ranges fall.
Analysis Disclosure & Disclaimer SaxBank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by SaxBank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis dnot occur as anticipated. SaxBank utilizes financial information providers and information from such providers may form the basis for an analysis. SaxBank accepts nresponsibility for the accuracy or completeness of any information herein contained. Any recommendations and other comments in SaxBanks analysis derive from objective fundamental macreconomical and company specific calculations, statistical and technical analysis, and subjective general market assessment. If an analysis contains recommendations tbuy or sell a specific financial instrument, such recommendation should be seen as SaxBanks opinion that the specific instrument will respectively outperform the relevant market or underperform compared tthe market. SaxBanks recommendations should statistically correspond tan even distribution between buy and sell recommendations. The recommendations may expire promptly due tmarket volatility and in general, SaxBank does not anticipate its recommendations tbe valid more than one month. An analysis will be updated if and only if a market development or other issues relevant tthe analysis render a new analysis on the same topic relevant. SaxBanks analysis does not cover any specific financial product over time but only products which SaxBanks strategy team finds it important tcover at any given point in time. In order tprevent conflicts of interest, SaxBank has established appropriate business procedures, incl. procedures applicable tresearch and analysis tensure objective research reports. SaxBanks research reports have not been discussed with the parties, e.g. issuers of securities, mentioned in the analysis. SaxBank is under supervision by the Danish Financial Supervisory Authority. SaxBank does not engage in corporate finance activities and accordingly, SaxBanks employees, incl. the persons responsible for an analysis, dnot receive remuneration associated with investment banking transactions. | |
Wednesday, November 19, 2008
Forex Market Update: Equities Dance At The Edge Of The Precipice Again, But Decide Not To Jump This Time. USD And JPY Continue To Bide Their Time In N
Subscribe to:
Post Comments (Atom)
Posts
No comments:
Post a Comment