Sunrise Market Commentary
- US Treasuries rally on renewed financial market stress
Treasuries eked out juicy gains, as equities tanked on financial market stress. Eco data might become a more important driver today, unless the credit crisis stays in the focus. Technicals are important too, as 2-, 5- and 10-year yields approach key levels. Overall, the picture is bullish.
- European bonds rally higher
On the European bond market, bonds have been rallying higher over the past month, as the euro zone economic outlook weakened sharply and inflation concerns abated. It will now be interesting to see whether the European bond market can hold on to its gains when traders and investors return to their desks from the beaches.
- Dollar remains well supported
After a sharp, oil-related swing at the end of last week, USD trading took rather calm start to the week yesterday. In a medium term perspective the dollar momentum remains constructive. Today, the German IFO might set the tone for EUR/USD trading short-term.
The Sunrise Headlines
- US Equities fall (Dow/S&P -2%) led by financials on renewed concerns about the credit crisis. However, Asian stocks fight back and limit losses.
- JP Morgan Chase warned of a possible $600m loss from its holdings of preferred shares in Fannie Mae and Freddie Mac.
- Credit Suisse announced AIG Inc, the largest US insurer, may post a third-quarter loss of $2.41 billion on mortgage-related write downs.
- The IMF downgrades its global annual GDP forecast for this year (3.9% from 4.1%) and 2009 (3.7% from 3.9%).
- Oil ($114.90) rose moderately supported by worries that tropical storm Gustav would turn into a hurricane and disrupt oil output in the Gulf of Mexico.
- Today the calendar is well-filled with the German IFO report and the house prices, consumer confidence and new home sales in the US.
Currencies: Dollar Remains Well Supported
On Monday, EUR/USD trading took a rather calm start to the week, at least if compared to the sharp (mostly oil related) swings at the end of last week. Credit related stories still dominated the global financial headlines, but this time the immediate impact of these headlines on EUR/USD trading was not that clear. EUR/USD throughout the European session rebounded from the intraday lows close to the 1.47 big figure at the start of European trading to test offers in the 1.48 area at the close in Europe. The only 'important' economic release of the day (US existing home sales) was marginally better than expected but left hardly any traces on the EUR/USD charts. The dollar regained some ground after the European close and closed the session at 1.4754 compared to 1.4793 on Friday. So, the dollar continued to build on the positive momentum seen at the end of last week, with traders now looking for the important economic releases to be published in the days to come.
Today, eco calendar heats up with a series of interesting indicators scheduled for release in the US as well as in Europe. In the US, markets look out for the CS house prices, the consumer confidence and the new home sales (among others). In Europe the German IFO release will get ample attention from the trading community. Later in the session also the Minutes of the previous FOMC minutes will be published.
Over the previous weeks, the swings in the oil price and the sharp deterioration in the European eco data were the major drivers for EUR/USD trading. Except for the sharp swings on Thursday and Friday of last week, the oil price apparently found some short-term equilibrium at the current levels. In this context one might expect the European data and, to a lesser extent, the development of the credit crisis to remain the key drivers for EUR/USD trading. Regarding the latter, the dollar recently grew more resilient to negative credit headlines and sometimes one is even tempted to conclude the US currency even regained some kind of safe haven status. We don't have a strong view on the outcome of the Ifo vis-à-vis the market consensus. However, a negative surprise might continue to weigh on the single currency.
EUR/USD: dollar holds positive momentum
Support stands at 1.4672 (Reaction low hourly), at 1.4630/03 (Reaction low/target channel break), at 1.4530 (2nd target double top) and at 1.4489/52 (Starc bottom/50 % retracement).
Resistance is seen at 1.4710 (Reaction high hourly), at 1.4807/17 (Reaction high/MTMA), at 1.4839/43 (envelope daily + weekly) and at 1.4908 (Reaction high).
The pair is moving into oversold territory.
USD/JPY
Looking at the charts, the clear drop below the 1.53 previous range bottom was an outright positive signal fore the US currency against the euro with the pair setting an new short-term low in the 1.4630 area last week. A technical rebound was blocked in the 1.4900 at the end of last week. For now we prefer a sell-on-up-ticks approach in EUR/USD as long as the pair holds below the 1.4908 reaction high. Beyond the 1.4630 low, the next high profile levels on the technical charts are seen in the 1.4530 area (target of the MT channel break/Multiple top formation) and in the 1.4310 area (December lows).
Over the previous week, the decline in oil prices also supported the dollar against the yen. However, the dollar gains against the Japanese currency were far less compared to USD/EUR. Ongoing financial uncertainty and even more the sharp decline in EUR/JPY recently slowed the rebound in USD/JPY. Contrary to what happened in EUR/USD, the dollar yesterday even lost some ground against the yen, with the dollar decline/yen rebound coinciding with a rather sharp decline in the US stock market indices at that time. USD/JPY closed the session at 109.30 compared to 110.07 on Friday.
This morning, the Japanese corporate services price was the only eco series scheduled for release. The outcome of the series was slightly higher than expected (1.3% YY), but as usual had no lasting impact on USD/JPY trading. Japanese/Asian equity markets also trade lower this morning, but except for the Chinese markets, the losses were not really that spectacular compared to what happened in the US yesterday evening. This causes the yen to give up some of yesterday's gains against the dollar this morning with USD/JPY trading in the 109.70 area at the moment of writing.
Looking at the technical charts, USD/JPY staged a gradual rebound from the mid- July reaction low to set a new reaction high at 110.68 on August 15. Since then, the pair entered a ST term sideways trading pattern between 108.14 and 110.68. For now, the USD/JPY uptrend is not really questioned yet, but the momentum is slowing. In a day-to-day perspective we prefer a buy-on-dips approach. A sustained drop below the 108.15 area would suggest that the pair is ripe for a more pronounced correction.
USD/JPY: shifting into a lower gear.
Support stands at 109.00 (ST low), at 108.72 (Daily envelope), at 108.12 (21 August low), at 107.75 (Neckline double bottom) and at 107.27 (Reaction low).
Resistance comes in at 109.86 (Daily envelope), at 110.28 (ST high), at 110.68 (Reaction high), at 110.94 (Boll top), at 111.40 (Weekly envelope) and at 111.73 (2nd target double bottom)
The pair is neutral territory.
EUR/GBP
On Monday, UK markets were closed. So, sterling trading was driven by the price action in other cross rates. EUR/GBP started trading in the 0.80 area, but drifted lower throughout the session which is a bit remarkable given the intraday rebound in EUR/USD. However, we wouldn't give too much weight to yesterday's price action. The pair closed the session at 0.7961 compared to 0.7885 on Friday.
Today, only the BBA loans for house purchases are scheduled for release.
Contrary to what happened in EUR/USD, EUR/GBP continues to trade within the long-standing trading range. The UK eco data recently were at least as uninspiring as what was reported from the Euro-zone area and in this context the European and the UK economy (and their central bankers) are seen as more or less facing similar challenges. In this context the sideways price action in EUR/GBP shouldn't surprise. For now, we don't see any strong reason for EUR/GBP to leave the well-established sideways range. Over the previous days, due to poor UK data, EUR/GBP moved gradually higher. However, with high profile resistance lining up we wouldn't add to EUR/GBP long exposure at the current levels. .
EUR/GBP: holding the established sideways range
Support stands at 0.7952/47 (STMA/Daily envelope), at 0.7938 (Break-up), 0.7916/02 (Weekly envelope/ Boll Midline).
Resistance is seen at 0.7995/04 (Daily envelope/ ST high), at 0.8051 (ST reaction),
The pair is moving into overbought territory.
News
US: Existing home sales rebound, but inventories are rising
Existing home sales unexpectedly rebounded in July, rising 3.1% M/M to 5.00M after falling a downwardly revised 2.8% M/M (to 4.86M) in June. Both sales of single family homes (3.1% M/M from -3.4% M/M) and sales of condos (3.4% M/M from 1.7% M/M) were rising. Regionally sales were only lower in the south (-0.5% M/M). The total number of homes available for sale rose from 4.495M in June to 4.669M in July and the months' supply on the market widened to 11.2 after reaching 11.1 in June, a not so favourable development. Looking at prices, both the median and average prices for an existing home were lower on a monthly basis, while the median price was 7.1% down against June 2007 and the average price was 8.0% Y/Y down. Although sales were better than expected, inventories are still rising which indicates that housing market conditions are still weak.
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Disclaimer: This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.
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