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Morning FX thoughts - 4 Aug '11

Thursday 4th August 2011

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Market sentiment stabilised. The S&P500 probed lower at the NY open, but recovered to be up 0.4% currently. Contributing to the stability was market speculation the US central bank will flag fresh stimulus measures (such as buying long bonds) at next week’s meeting.Three former senior Fed staff opined in the WSJ that the Fed should consider additional quantitative easing.

The Swiss central bank (SNB) added to the stimulatory mood by cutting its 3-month policy rate by 25bp to zero as well as increasing liquidity in a bid to stem the franc’s appreciation. The move came early in the London session and boosted global sentiment for a few hours.

Commodities appeared to respond to day-old themes, the CRB index down 1.3%, with oil -2.0% and copper -1.4%.

US 10yr treasury yields probed lower to 2.55% after a weak US services ISM report but are currently unchanged at 2.60%.

The US dollar index fell sharply from 74.7 to 74.0 after the SNB move and sat there through the NY session.

EUR rose from 1.4144 to 1.4345, forming a bullish key reversal day. The EC’s Barosso said the European bailout fund should intervene in the secondary bond market.

USD/CHF surged from 0.7628 to 0.7728 in response to the SNB, but by the NY open had fallen back into a 0.7635-0.7690 range.

USD/JPY fell from 77.40 to 76.80. AUD made a consolidative double bottom at 1.0680 during early NY.

NZD similarly consolidated above the recent low, ranging between 0.8600 and 0.8679. AUD/NZD ranged between 1.2400 and 1.2500.

AUD/USD and NZD/USD outlook next 24 hours: AUD should hold above trend support (from late June) at 1.0680 today. NZD may consolidate slightly higher to 0.8680 today but further ahead looks weak given the downturn in momentum. NZ’s unemployment rate will be important today.

Source: Westpac Global Markets

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