Daily Market Commentary - Share my thought for the day.

China Forex Reserves 65% in Dollar, 26% in Euro and 5% in Pound

mfsforex@hotmail.com — Fri, 03 Sep 2010 01:55:00 GMT

AUDUSD: The Australian dollar was higher late in Asia on Thursday on the back of better-than-expected U.S. manufacturing data, heading into an offshore session packed with event risk.

The local currency weakened a little after the Australian Bureau of Statistics reported the seasonally adjusted balance on trade in goods and services narrowed to a surplus of A$1.89 billion in July from A$3.44 billion in June. Economists had expected a July surplus of A$3.1 billion.

Long AUD/USD was recommended on strong Australian July retail sales and building approvals data as well as narrower-than-expected Australian 2Q current account deficit.

Also, daily chart was supportive of long AUD/USD positions at trade entry as spot had broken above downtrend line from Aug 6 high of 0.9221, bullish parabolic stop-and-reverse signal was hit at 0.8946 on Friday, stochastic measure was rising from oversold, while negative MACD histogram bars were contracting, pointing to increasing upside risks for AUD/USD.

We expect a range for today in AUDUSD rate of 0.9000 to 0.9170 (Short at 0.9170, stop loss at 0.9220, target OPEN)

EURUSD: The euro lost earlier gains Thursday as the recent improvement in global risk sentiment proved short-lived.

However, the single currency did find some support at mid-morning from a successful auction of five-year bonds by Spain, further easing concerns about the euro zone's sovereign debt problems.

A further decline in U.K. house prices, concern that the European Central Bank will prove more dovish than expected after its policy meeting later Thursday and speculation about Friday's non-farm payrolls in the U.S. have all helped to inject caution in trading among major currencies.

In the U.K., Nationwide reported that house prices fell by 0.9% last month, following a 0.5% fall in July. This will only contribute to fears that the U.K. economy is about to slow even further as a big fiscal squeeze gets underway.

Financial markets also appear to be bracing themselves for a more bearish assessment of the euro-zone economy from ECB President Jean-Claude Trichet. Trichet is expected to echo recent comments from Axel Weber, the Bundesbank president and likely successor to Trichet this year, suggesting that there should be an extension of the central banks' extraordinary liquidity provisions into next year. Although there has been strong economic data from core countries in the region, such as Germany, peripheral ones are still seen struggling under tight fiscal regimes aimed at resolving their sovereign debt problems.

We expect a range for today in EURUSD rate of 1.2750 to 1.2850 (Short at 1.2850, stop loss at 1.2900, target OPEN)

USDJPY: Dollar/yen currency options declined slightly in Asia Thursday as players sold hedges against the dollar's downside due to a lack of sharp movements in the underlying exchange rate.

Benchmark one-month at-the-money volatilities edged down to 11.70%/12.40% from 11.80%/12.50% in New York Wednesday. The slight fall came as the dollar stuck to a Y84.12-Y84.55 range, above the 15-year low of Y83.58 marked last week.

Market participants are focused on U.S. jobless claims for the week ending Aug. 28, due at 1230 GMT. Jobless claims may decline slightly to 470,000 from 473,000 in the previous week, according to the median forecast of economists

There is also concern about developments in the U.S. Despite the strong ISM, some analysts are concerned that there could still be downside risks to Friday's non-farm payrolls data for August, especially in the latest jobless claims figures due later Thursday show another sharp rise.

If the data come in below expectations, that could stoke concerns about the U.S. economy and push investors toward safe-haven currencies such as the yen

We expect a range for today in USDJPY rate of 84.00 TO 84.65 (Long at 84.00, stop loss at 83.50, target OPEN)

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The dollar extended losses on Wednesday after a measure of U.S. manufacturing activity unexpectedly improved last month

mfsforex@hotmail.com — Thu, 02 Sep 2010 01:05:00 GMT

AUDUSD: The Australian dollar surged in Asian trade after robust second quarter growth figures released Wednesday showed the domestic economy is firing on all cylinders, keeping alive the notion of further rate hikes by the central bank.

Bonds fell and the local currency was strongly bid after data showed the economy grew 1.2% in the second quarter from the first, well above the 0.9% expected by economists.

In the rates market, a pairing of expectations for interest rate cuts meant the three-year September spot contract fell nine ticks to 95.62, while the 10-year contract fell two ticks to 95.22.

"On this long-run view there is no value in the 10-year government bond at current levels. Cyclical considerations mean, however, that we can't rule out a rally to 4.5%. As a consequence we are retaining our modest underweight rather than adding to it at this stage."

We expect a range for today in AUDUSD rate of 0.9000 to 0.9170 (Short any price above 0.9170, stop loss at 0.9220, target OPEN. Note: Short at the current price could possible)

EURUSD: The European Central Bank said Wednesday it allotted $60 million at a seven-day dollar swap tender at a fixed rate of 1.19%.

Demand for the dollar swap facility has been running at a generally stable and low level for the last month. The ECB offers dollars in cooperation with the Federal Reserve to guarantee access to dollar liquidity for euro-area banks unable to get the funds from the market.

The ECB had discontinued its dollar tenders as the signs of tension in international money markets receded in the wake of last year's radical monetary policy stimulus measures on both sides of the Atlantic. However, the tenders were revived after markets froze up again in May on fears over euro-zone sovereign debt levels.

In contrast to the first time, demand at the tenders has been very modest so far.

We expect a range for today in EURUSD rate of 1.2700 TO 1.2880 (Short at 1.2880, stop loss at 1.2930, target OPEN)

USDJPY: The dollar extended losses on Wednesday after a measure of U.S. manufacturing activity unexpectedly improved last month, adding to evidence of pockets of strength in the economy.

The dollar and Japanese yen were under pressure from an earlier U.S. report on employment and a round of stronger Chinese and Australian economic data revived appetite for risky assets and crimped safe-haven flows into the currencies

USD/JPY is back under bear pressure Wednesday as Tuesday's low at 83.83 becomes the focus. A break below there is required to put bears in control of the near-term, prompting further weakness towards the August 24 15-year low at 83.58, and threatening to test the 20-month bull support line of a diagonal triangle at 82.90. Above 84.20 would provide temporary respite, but corrective gains should be limited to the 84.58 high. USD/JPY is at 84.03.

We expect a range for today in USDJPY rate of 84.00 TO 85.20 (Long at 84.25, stop loss at 0.8375, target OPEN)

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The central bank's policy board said at an emergency meeting it will lend another JPY10 trillion in six-month funds at a fixed rate.

mfsforex@hotmail.com — Wed, 01 Sep 2010 00:20:00 GMT

AUDUSD: Australian data on Tuesday mostly came in solid, including a narrow current account deficit and a rebound in both retail sales and building approvals in July, market participants mostly shrugged off the reports when it came to the Australian dollar.

Instead, concern about upcoming Chinese and U.S. manufacturing data and U.S. jobs data this week had those long the Australian dollar paring back their positions, especially in the wake of weak equities in the U.S. and Asia.

The Australian dollar's position against the Japanese yen has been particularly hard hit in the past two days following the Bank of Japan on Monday unveiling a series of new measures that failed to meet traders' growing expectations.

"This is a front-end driven rally and is a further disconnect from the fundamentals. You can argue whether they have scope to raise interest rates, but the case for a cut remains very weak," However "If we're on the right track, it's hard to get too bullish about this week being a turnaround for equities and that will weigh on the Aussie,"

We expect a range for today in AUDUSD rate of 0.8875 to 0.8970 (Long at 0.8875, stop loss at 0.8825, target OPEN)

EURUSD: A range of new bond issues gave European bond investors something to focus on Tuesday, as credit analysts begin outlining their expectations for the remainder of the year.

Unicredit set final guidance on its EUR1.25 billion, five-year deal at a relatively tight 98 basis points over mid-swaps. But in a worrying reminder of the premium Spanish issuers have to pay to raise new debt, BPE set guidance on a three-year, benchmark covered bond at a hefty 215 basis points over mid-swaps.

As the holiday season draws to a close and investors return from the beach, European analysts are starting to lay out their supply predictions for September and beyond.

EUR/USD is staging a recovery off Tuesday's current session low at 1.2625 as the near-term pivotal resistance level at 1.2716 comes into view. However, to build on the previous week's bull hammer candle, a break above the key 1.2740 resistance area is required, which protects last Friday's high at 1.2780. Failure to keep 1.2625 intact would put bears in control of the near-term, exposing the August 24 reaction low at 1.2588 and threatening further weakness towards the 1.2490/1.2500 support area. EUR/USD is at 1.2684.

We expect a range for today in EURUSD rate of 1.2620 to 1.2740 (Long at 1.2620, stop loss at 1.2570, target OPEN)

USDJPY: Dollar/yen currency options rose in Asia Tuesday as the greenback extended its losses against the yen on the back of falling regional stocks markets, increasing demand for downside protection.

The dollar's fall also came amid lingering views that the Bank of Japan's monetary easing steps Monday weren't aggressive enough to stem the yen's recent strength. The central bank's policy board said at an emergency meeting it will lend another JPY10 trillion in six-month funds at a fixed rate.

Japan's finance minister Yoshihiko Noda Tuesday defended the BOJ from such criticism, suggesting he may refrain from demanding more monetary easing for some time. He also voiced displeasure about the currency's persistent rise, again hinting at the possibility of currency-market intervention, if necessary.

The dollar fell against the euro and Japanese yen Tuesday after better-than-expected data on U.S. consumer confidence and home prices lent support to U.S. stocks and reduced demand for the relative safety of the greenback and yen.

The dollar recovered against the euro but remained down against the yen on Tuesday after U.S. stocks turned negative and Federal Reserve officials indicated willingness to consider taking additional steps to provide more support if the economy weakens further.

The dollar index (DXY), a measure of the U.S. unit against a basket of currencies, recovered to trade at 83.097, down from 83.184 late Monday. It fell as low as 82.877 earlier in the session.

We expect a range for today in USDJPY rate of 84.00 to 85.20 (Long at 84.00, stop loss at 83.50, target OPEN. Note: The pair could drop low 83.70 areas.)

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