Morning Adviser Asia 9/13/2010 9:13:00 PM
Weaker Dollar On Risk-Seeking
By Brian Kim
The dollar weakened against all of the G10 currencies as risk-seeking continued with equities up 1% and oil back above $77. Treasury yields also came down as investors digested the less stringent than expected Basel II negotiations and the decent Chinese economic data. The only data release of the day was the monthly budget statement, which showed a deficit for the 23rd consecutive month, the longest stretch on record. Retail sales data will help show how the consumer has weathered the recent soft patch in data. We are expecting a moderate rise in August, though some tepid auto sales could weigh on the headline figure.
EUR Targets: EURUSD 1m 1.28, 3m 1.15 The euro benefited from the renewed risk-seeking but the German ZEW survey data will be another important step to see if softer times are ahead for the Eurozone. Consensus estimates are for a dip in the economic sentiment reading but an increase to 50.0 for the current situation. ECB President Trichet said what was decided on Basel III would not hamper the global recovery and said he saw no deflation risk in advanced economies for now. Trichet did not offer any comments on monetary policy.
JPY Targets: USDJPY 1m 85.00, 3m 95.00 USDJPY remained heavy ahead of the DPJ leadership election as investors put some more money to work across asset classes. Press reports suggest the race is still too close to call and given recent price action, there appears more scope for an upside USDJPY surprise should Ozawa win given that it would inject uncertainty into the future policies of the DPJ and also given his outspoken support of FX intervention. Results are expected around 0600GMT.
NZD Targets: NZDUSD 1m 0.74, 3m 0.70 The NZ Treasury forecast that the Sept 4 earthquake in Christchurch and subsequent tremors would likely shave 0.4% q/q off Q3 GDP. The report predicted that the cost of the recovery effort could reach NZ$4 bn. However, the report also forecast that the rebuilding effort will provide an economic boost in 2011 and 2012. No details have yet been released about whether the earthquake relief fund will be forced to sell some or all of its overseas equities holdings to pay for compensation claims. Overseas holdings were worth approximately NZ$1 bn in June 2009, and their sale could give rise to significant NZD inflows. We do not expect any change in the OCR at this week's RBNZ meeting.
GBP Targets: GBPUSD 1m 1.50, 3m 1.35 Investors have been concerned about elevated inflation readings but BoE MPC members believe the data should start to come back down. We should see slight easing in the y/y figures for both CPI and RPI, which could temper investor expectations for the BoE at this stage in the recovery. We closed our short GBPCHF recommendation but think there may be opportunities to revisit the trade with the SNB likely to tighten policy ahead and fiscal austerity concerns to weigh on sterling.
FX Technicals AUDUSD targets 0.9389 EURUSD BEARISH Violation of 1.2588 and 1.2434 thereafter is required for the confirmation of bearish trend. Resistance holds at 1.2919 USDJPY BEARISH Trend is bearish; there is little support till 79.75 key level. Short-term resistance is defined at 85.23 GBPUSD BEARISH Stalled above 1.5297; a break here would expose 1.5125/15 ahead of 1.4906. Near-term resistance lies at 1.5565 ahead of 1.5731 USDCHF BEARISH Focus is on the downside with initial support lying at 1.0061 ahead of 0.9918. Near-term resistance comes in at 1.0278 ahead of 1.0466 AUDUSD BULLISH Bullish pressure targets 0.9389; break of the level would favour another run towards 0.9406. Near-term support is at 0.9171 ahead of 0.9055 USDCAD NEUTRAL 1.0673 and 1.0108 define the next bull and bear triggers respectively. EURCHF BEARISH Sell-off from 1.3924 found support at 1.2766; break of the level would expose 1.2626 ahead of 1.2403. Resistance at 1.3163 EURGBP NEUTRAL Model is neutral; 0.8390 and 0.8142 mark key near-term directional triggers. 0.8068 defines a key support level. EURJPY BEARISH Focus is maintained on 105.44, next support at 100 psychological level. Resistance is at 111.19 *NOTE: The trend for each currency pair as defined in the table is determined by our proprietary model and is independent of our discretionary interpretation of price action
