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FX Thoughts for the Day

Kshitij Consultancy Service Team from Kshitij Consultancy Service at 12/17/09


Morning Briefing : 17-Dec-2009 - 0335 GMT


THe Dow (10441.12) and the Nasdaq (2206.91) ended flat after trading higher for most part yesterday. The Fed's comments yesterday did not spur enough confidence in the markets to take the Dow above 10500. The Fed said that the US economy was strengthening and the deterioration in the labour market was abating. It also mentioned that most of the federal aid shall be removed by Feb 1, 2010.

The Asian indices are trading mixed today. The Nikkei (10221.46) is up 0.43% while the Shanghai (3225.49) is down 0.79%. The Sensex (16912.77) had closed marginally higher yesterday. The Resistance at 17350 continues to weigh on the Sensex. If a break below 16750 is seen the Sensex may then fall another 500 points from there.

Crude (72.72) has risen sharply following the EIA's data release which showed an unexpected drop of 3.7 million barrels in the US Crude inventories against the expected 1.8 million barrels decline thereby easing the concerns about the energy demand. If the current strength on its upmove continues, we might see a rise towards 75.50-76.00 in the coming days. Support is seen at 72.50.

Gold (1138) is continuing to retain the range 1110-1150. Though the dollar is continuing to trade strong, we have not seen much downmove reflecting in the Commodity. This divergence is keeping up the broader bullish sentiment and any weakness in dollar would reignite the upmove in the Commodity.

There has been a handsome all-round gain in the Dollar overnight, but may faces important Resistances today.

The Euro (1.4425) has been battered overnight and in Asia today, after having bounced to 1.4593 yesterday. It has been a dramatic fall, much more than our expectation, since the 1.5145 high of 25-Nov. There is some "last" Support at 1.4400 today, which is its "last hope" for recovery. Should that break a further decline to 1.43 would be the next target to look at. The Aussie (0.8953) too has fallen sharply, but has a strong Support at 0.8915 today. Dollar-Yen is up at 90.04, compared to the low near 88.58 day before, but faces an important Trend Resistance on the Daily Candles right here. The Euro-Yen Cross (129.85) has been pulled down by the Euro, coming down from yesterday's high near 130.80.

The Pound (1.6255) had bounced to a high near 1.6414 yesterday, but has reveresed all of the gains and is now testing Support at 1.6230. Dollar-Swiss (1.0466) has continued to rise alongwith the fall in the Euro. Some Resistance is seen at 1.05 today.

As suggested yesterday, the Sing Dollar has weakened to 1.4005 today and further weakening towards 1.41 might be on the cards. Dollar-Won too has moved up to 1176.90 and a test of 1187 now looks likely. As such, there would be a danger of Dollar-Rupee rising towards 47.10, as compared to its closing near 46.6550 yesterday.

Although the Fed left rates unchanged (as per expectation yesterday) it has said that special liquidity facilities will expire on 01-Feb-10. We see the US Yield Curve flattening with the Yields on the 5-Yr and 10-Yr Bonds moving up while the Long-Bond yields remain stable, or come down. Take a look at the US Yield Curve chart at

Note also the rise in the yield differential between the US 10-Yr Bond and the 10-Yr Japanese Bonds (JGBs). Take a look at

The Dollar's Yield Differential against the Euro has also been improving lately, as can be seen on

These developments explain much of the Dollar's strength over the last couple of weeks.

12:00 GMT CA Core Inflation Index Y/Y
...Previous 1.8%

15:00 GMT Nov US Philifed Index
...Expected 16.1...Previous 16.7

AU GDP Q3 '09 (Pre)
...Actual 0.2%...Previous 0.6%

EU Nov CPI (YoY)
...Actual 1.0%...Previous 1.2%

US Nov Core CPI (MoM)
...Actual 0.0%...Previous 0.2%

US Current Account Balance
...Actual $ -108 Bln...Previous $ -98.8 Bln

US Nov Housing Starts
...Actual 0.570 Mln...Previous 0.530 Mln

US FOMC Interest Rate
...Actual <0.25%...Previous <0.25%

19:15 GMT US FOMC Interest Rate
...Expected <0.25%...Previous <0.25%

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