Risk CCY's have very little holding power
11/11/08 19:41
The fear of recession took control of the US equity
markets, overshadowing China's stimulus package and
the increased AIG bailout package. Dow finished
Monday at 8870.54, down 0.82%. S&P closed at
919.21, down 1.27%. The financial led the bourses
lower as market expects a Q4 loss from US bank.
Meanwhile, General Motors share came under
significant selling pressure as one of the analyst
reports expects its stock price to fell to 0.
Meanwhile, Asian markets are lower at time of
writing, evidenced by the JPY rally.
USD: Dollar index rebounded about 1 big figure to 86.10 level on the decline of equity market. The outlook for the US consumer sector deteriorates further with Circuit City filed for bankruptcy protection. They are off to an early start, as we will see more deteration in the consumer sector in the months to come. GM down 23% and holding on by their fingernails. I was born and raised in the wonderful city of Windsor, Canada (across from Detroit, Michigan USA), which is an automotive town. Not only did Windsor/Detroit experience declining real estate and high unemployment during the boom, those who were working for companies like GM, will not receive a pension. Consider this the root of things to come. Therefore, USD and JPY likely to maintain longer term strength well into 2009.
JPY: USDJPY struggled to break above 98.00 level in early Asia trading. Asia equity markets are likely to follow the decline in the US (Nikkei opened with -1.3%), as the optimism over the China's stimulus package fade. Price actions have been consolidating in this 96.75/100.55 range for a while now. And the longer this range holds, the greater is the danger of a return to the dominant downtrend.
EUR: came under pressure and fell to 1.2700 level after Nikkei's low open. A clean break below 1.2700 should see an acceleration on the downside with 1.2550 the near next. 1.2930 an imminent cap.
AUD: AUDUSD failed to break above 0.70 level last night and slid back to the 0.66 handle on the rising risk aversion. NAB Business confidence in October came in at -29, which is a recession level and a record low with -25 reached in the 90/91 recession. The Business conditions however seem more consistent with soft landing at -11, with a low of -42 in the 90/91 downturn (obviously still room to fall further). Will maintain the AUD shorts with stops lower at 0.6750
Gold: stayed in the range of 740-748/oz after rallying 2% yesterday. Support seen at 735 and 700. Resistance at 775 and 820.
Good Luck with your trading and be careful out there.