Equity Markets Head For A Strong End To 2009

Forex News and Events:

The final trading day of 2009 has kicked off with a strong equity market performance across Asia (Hang Seng +1.75%, Shanghai Composite +0.45%); sealing the biggest annual gain for Asian stocks since 2003. The rally in equity markets globally has been extremely impressive in the past 12 months; with the MSCI World Index set for a 27% annual gain, and benchmark indices for the BRIC economies up by even more astonishing figures; Brazil’s Bovespa +82.7%, Russia’s RTS +127.1%, India’s Sensex +81.7%, China’s Shanghai Composite +80.0%. Of course, looking through this euphoric gain, the longer term investor will point out that this is the first decade in history that the S&P will close down (31 Dec 1999 close: 1469.25, yesterday’s close: 1126.42), serving as a strong reminder of the sheer magnitude of the financial crisis that we are still recovering from. Policymakers and investors alike will be looking to 2010 to confirm that the threat of a double-dip recession is vanquished, and crucial to that will be a steady improvement in US data (particularly employment) and continued demand from China. The demons lurking in the wings will of course be the enormous budget deficits that governments have accumulated in fending off the recession thus far; and we have already seen the cracks that have started to appear in the form of credit rating downgrades to Greece, Ireland and Dubai. Japan is another economy walking a fine line between maintaining its sovereign debt rating and possible downgrades, as the glut of JGB issuance extends beyond Y44trn. We have highlighted a number of times the mounting arguments for the JPY to be a significant laggard in 2010 – especially if the rest of the world manages to sustain their current momentum of recovery. Returning our focus to the remainder of 2009, the thin liquidity combined with month-end, quarter-end and year-end are will make for unpredictable and choppy trading conditions across the majors and EM pairs. Confirming the range-bound price action of the prior few weeks, the USD has conceded some of its recently daily gains this morning, on very little fundamental stimulus. If anything, USD sentiment should be boosted by yesterday’s impressive jump in the Chicago Purchasing Managers’ Index which hit 60.0 in December – against forecasts for the number to decline to 55.1 from last month’s 56.1. The sole item on the economic calendar for the remainder of the day will be US claims, but for FX markets the emphasis will be on fixing orders later in the day as asset managers rebalance their portfolios.

Today's Key Issues (time in GMT):

13:30 USD Initial Jobless Claims, exp: 460k, prev: 452k
13:30 USD Continuing Claims, exp: 5100k, prev: 5076k

The Risk Today:

EurUsd For another very light data calendar we are anticipating continued choppy trading in thin liquidity. Today's early rally to highs of 1.4441 failed to pose a decent threat to the 1.4460 range resistance. Any break above there would face further supply at 1.4500, 1.4600, and a major hurdle at 1.4685. Expect yesterday's lows at 1.4273 to provide first support, with the 200 day moving average coming in below at 1.4222.

GbpUsd Yesterday's sharp rebound from 1.5833 lows has completely negated the break of 1.5925 support, and indeed the subsequent demand for GBP into year-end has ensured GBPUSD climbed back above the 200 day moving average at 1.6066 with ease, and has now overshot the upper bound of the recent ranges to trade up to 1.6151 highs so far. 1.6200 will cap most rallies for now, but above there expect very little significant resistance until 1.6340 (10 day moving average). Support should now come in at 1.5833, and the critical 1.5708 support level below.

UsdJpy Since breaking above 91.80 levels on Tuesday, USDJPY has continued to be supported and yesterday powered up to highs of 92.77; threatening the upper bound of the downtrend channel that has been in play since mid-2007. Expect plenty of offers around yesterday's highs, and bids around 91.80 to contain the pair in a range today; but if we do get a break-out in the thin liquidity then next major topside resistance will be 95.00.

UsdChf Choppy range-trading prevails in USDCHF between 1.0280 and 1.0425, with today's sell-off erasing Tuesday's move higher. Next levels to watch outside the range are 1.0508 key high and beyond there the 1.0700 major resistance (38.2% correction of the move from 1.1970 down to 0.9918). Near term support stands at 1.0320 ahead of 1.0219.

AC Markets
http://www.ac-markets.com

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