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Morning FX thoughts - 11 Nov'11

Westpac Global Markets Strategy Group

Friday 11th November 2011

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Market focus shifted from political events to the central bank in Europe as ECB policymakers expressed their reluctance in ramping up Italian bond purchases, passing the Europe debt crisis rescue burden onto the governments.

The intra-day gains from better than expected US trade, jobless claims data and the positive developments in the Italian and Greek parliaments earlier in the day were overshadowed by the ECB members' comments.

Trade news from Asia continued to worsen as China and Philippines exports plunged, on weaker global demand -- dragging down the entire APAC.

Eurostoxx 50, at one point 1.5% higher, is now trading 0.4% lower compared to yesterday's close. S&P 500 is trading flat after opening 0.7% up. Italy 10 year yields came down from a euro-era high of 7.46% to 6.75% but again clawed back to 6.95%. Copper is down 2.8%.

Gold was 2.6% down, retraced some of its losses and is now trading -1.4%. Oil is up 1.4%. US 10 year yields have fallen by 4bps from the intra-day high of 2.05%.

The US dollar index rose sharply after the ECB comments, still marginally down from yesterday's close. Euro went up from an early London low of 1.3484 to touch an intra-day high of 1.3653 after the news of Papademos' confirmation as Prime Minister of the interim Greek government, but shed some of the gains to trade at 1.3574.

JPY is currently trading at 77.62, near its intra-day high of 77.56, up from the low of 77.87. AUD touched the high of 1.0209 from the low of 1.0052 before gyrating back to 1.0125. Similarly, NZD rose to 0.7821 before coming back to 0.7759.

AUD/NZD is up from early London's 1.3000 to the intra-day high of 1.30061 currently.

AUD/USD and NZD/USD outlook next 24 hours: US monthly budget statement and consumer confidence are the major events to look out for. European concerns may continue to drive the currency movements for today. We expect the bear trend to continue, AUD and NZD may test their respective supports of 0.9988 and 0.7668 and may find resistance at 1.0199 and 0.7857, unless there are any big surprises.
Expected range: 0.4860 – 0.4920


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