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Morning FX thoughts - 16 Nov'11

Westpac Global Markets Strategy Group

Wednesday 16th November 2011

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Markets remained sour over the growing uncertainty over the euro area sovereign debt crisis.

Asian and European markets remained weak, which prompted US stocks to open lower despite better-than-expected economic data.

Rising euro zone bond yields reflected weak investor sentiments. Adding to the woe, the euro area grew at a meager pace in Q3, reinforcing the pessimistic outlook for the region.

Italian and Spanish 10yr government yields rose to 7.04% and 6.28% respectively.

The Euro Stoxx 50 recovered from its intra-day low of -2.6% and is currently trading -1.2%, S&P is down 0.1%. Copper is 0.3% up, gold 0.2% up, oil is 0.3% down.

The US 10yr yield dropped by 8bps from the intra-day high of 2.07% to test the 2% level, and is currently at 2.02%.

The US dollar index is up moderately on overall weak risk sentiment. EUR opened near its previous close but then fell sharply in early London trade to the intra-day low of 1.3512, and is currently at 1.3539.

AUD opened in the green near the high of 1.0227, but then dropped to the low of 1.0113 before recovering most of its losses to trade at 1.0161 early NY. NZD fell about 1.7% to the low of 0.7671 and is now at the 0.7720 level.

JPY had a sharp spike down to 77.50 from 76.98 on speculation that the Bank of Japan will expand lending to boost the economy and weaken the yen, but then rose back to 76.91 and is trading at 76.94. AUD/NZD touched a high of 1.3225 from the low of 1.3068 and is currently at 1.3200.

AUD/USD and NZD/USD outlook next 24 hours: Westpac's Australia leading index, followed by data from both the US and Europe are key for the day's movement. AUD/USD and NZD/USD continue their bear move, we see them moving towards their lower pivots of 1.0052 and 0.7625 respectively. Movements on the higher side should be capped at 1.0340 and 0.7812 respectively.


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