Market Outlook 24 Nov 2008

The euro depreciated vis-à-vis the U.S. dollar last week as the single currency tested bids around the $1.2425 level and was capped around the $1.2810 level. The pair lost about 45 pips last week.  NABE sees the U.S. economy shrinking 2.6% in Q4 and 1.3% in Q1.  G20 officials called for closer coordination and will have a "college of supervisors" monitor the world's largest financial institutions.  Fed funds futures see a 100% chance of a 50bps easing on 16 December.  U.S. automakers failed to secure a congressional bailout.  The Fed reduced its 2008 GDP forecast to 0.0% - 0.3% and its 2009 forecast at -1.0%.  FOMC #2 Kohn said deflation calls for aggressive easing.  Sr. Louis Fed's Bullard said the Fed may need to resort to quantitative easing.  Citigroup shares moved to all-time lows.

 

Bundesbank warned the economy could weaken further in Q4.  ECB's Bini Smaghi, Weber, Mersch, and Nowotny see more rate cuts.

 

Data released in the U.S. last week saw October PPI off a record 2.8% with core PPI up 0.4% m/m and 4.4% y/y; September TICS net inflows were US$ 143.4 billion; October industrial production was up 1.3% with October capacity utilization at 76.4%; October core CPI was off 0.1% m/m and up 2.2% y/y; October housing starts were off 4.5% with building permits off 12%; weekly initial jobless claims were up 27,000 to 542,000 with continuing claims at 4.012 million; and October consumer confidence fell 0.8%.

 

Data released in the eurozone last week saw German October CPI at -0.2% m/m and +2.4% y/y; October PPI was unchanged m/m and up 7.8% y/y; and French consumer spending declined 0.4%.

 

Last week's high (1) was below the 23.6% retracement of the 1.1638-1.2328 range and last week's low (2) was just above a multi-month low.  The 1.2927/ 1.3204/ 1.3359/ 1.597 levels represent upside resistance targets while the 1.2326/ 1.2081/ 1.1685 levels represent downside support targets.

 

 

The yen appreciated vis-à-vis the U.S. dollar last week as the greenback tested bids around the ¥93.65 level and was capped around the ¥97.55 level.  The pair lost about 135 pips last week. The Nikkei 225 stock index gained 2.70% on Friday to close at ¥7,910.79.  Finance chief Nakagawa verbally intervened against the yen's strength.  PM Aso expressed "firm" support for a U.S. dollar-centered global FX system.  Opposition Democrats are trying to force an early election.  Yosano said FY 2009 could see negative economic growth.  BoJ kept rates unchanged and Shirakawa said the "severe adjustment" will take time.  The government reduced its economic assessment and sees worsening exports. 

 

Data released in Japan last week saw September industrial orders up 1.1% m/m; October wholesale prices were up 4.8% y/y; Q3 GDP was off 0.1% q/q; the September tertiary index was off 0.6% m/m; September wages were upwardly revised to +0.2% y/y; the September all-industries index fell 0.1% m/m; and exports declined 7.7% y/y with a trade deficit of ¥63.9 billion.

 

The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8311 in the over-the-counter market.  Hu railed against protectionist policies.  Economists are eyeing possible deflation in China next year. 

 

Data released in China saw October fixed asset investment up 27.2% y/y and October urban unemployment printed at 4.0%.

 

Last week's high (1) was below the 38.2% retracement of the 110.64-90.88 range and last week's low (2) was below the 23.6% retracement of the same range. Upside resistance targets remain the 98.43/ 100.76/ 102.42/ 103.14 levels while downside support targets remain the 95.71/ 91.87/ 90.88 levels.

 

 

The British pound appreciated vis-à-vis the U.S. dollar last week as cable tested offers around the US$ 1.5250 level and was supported around the $1.4640 level.  The pair gained about 115 pips last week.  BoE boss King said the MPC is "certainly prepared" to cut rates again if necessary.  Darling said increased fiscal spending is proper given the economic crisis and will give a pre-Budget report on 24 November.  Short sterling futures see up to 100bps of easing next month.  November MPC meeting minutes revealed talk of cutting more than 200bps this month, instead of the 150bps that were enacted.  MPC's Dale sees lower rates.

 

Data released in the U.K. saw October CPI growth decelerate to 4.5% y/y with core CPI at 1.9% y/y; CBI November manufacturing output fell to -42; October retail sales were off 0.1% m/m and up 1.9% y/y; October public sector net borrowing reached ₤1.382 billion; October CML gross mortgage lending rose to ₤18.7 billion; and Q3 home repossessions printed at 11,300.

 

Last week's high (1) was below the 23.6% retracement of the 1.8668-1.4558 range and last week's low (2) was just above a multi-month low.  Upside resistance targets include the 1.5446/ 1.5879/ 1.6128 levels while downside support targets include the 1.4558/ 1.4442/ 1.3682 levels.

 

The Swiss franc depreciated vis-à-vis the U.S. dollar last week as the greenback tested offers around the CHF 1.2300 figure and was supported around the CHF 1.1890 level. The pair gained about 275 pips last week.  SNB shocked the markets with a 100bps cut to 0.50% to 1.50%. 

 

Data released in Switzerland last week saw the November ZEW expectations index improved marginally to -88.5; October PPI rose 2.9% y/y and was off 0.6% m/m; October retail sales climbed 6.4% with October unemployment at 2.5%;  and October exports declined 8.1% with the trade surplus higher at CHF 1.84 billion.

 

Last week's high (1) was a multi-month high and last week's low (2) was above the 76.4% retracement of the 1.2476-0.9647 range.  Upside resistance targets include the 1.2593/ 1.3233/ 1.4269 levels while downside support targets include the 1.2076/ 1.1808/ 1.1758/ 1.1594 levels.

 

 

AUD

 

The Australian dollar depreciated vis-à-vis the U.S. dollar last week as the Aussie tested bids around the US$ 0.6075 level and was capped around the US$ 0.6595 level.  The pair lost about 180 pips last week.  The RBA is likely to cut at least 75bps in December and futures eye another 100bps in cuts beyond that by March.  GDP growth is seen at or below 1% in 2009.  RBA continued to heavily intervene to support the A$. and is likely to lower rates further.

Data released in Australia last week saw Q3 retail sales up 0.1%.

Last week's high (1) was right around the 23.6% retracement of the 0.9849-0.6007 range and last week's low (2) was just above a multi-month low.  Upside resistance targets include the 0.6600/ 0.6914/ 0.7262 levels while downside support targets include 0.6007/ 0.5536/ 0.5226 levels.

Sumber: GCI Foreign Exchange Research