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Morning FX thoughts - 20 Dec '11

Westpac Global Markets Strategy Group

Tuesday 20th December 2011

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Markets traded in the red as uncertainty and low investor confidence prevailed.

Asia-Pacific succumbed to the uncertainty of a political succession in North Korea while Europe and US markets were unable to hold on to the early gains.

Expectations of favorable outcomes from the ongoing European Finance Minister’s conference call on an additional EUR200bn IMF funding and ECB president Draghi's speech had managed to keep markets up before an e-mailed statement from the Basel Committee on Banking Supervision to Federal Reserve on stricter international capital standards turned the tide.

European peripheral bond market saw some correction with Italian and Spanish 10-year yields falling sharply and are now trading at 6.791% and 5.128%, respectively. Ahead of the ECB's 3 year liquidity loan on Wednesday peripheral debt could be in demand for collateral.

The US 10-year yield was volatile and currently trading low at 1.835% after reaching 1.877%, mid-day NY time.

Eurostoxx 50 started off on a bullish note reaching an intra-day high of +1.43% before reversing its trend and now trading at around -0.2%.

S&P 500 followed the same trend, however, on a much shorter timescale, currently down 0.6%. Commodities market reflected low investor confidence with gold, copper and oil trading lower by 0.4%, 1.3% and 0.1%, respectively.

The US Dollar index fluctuated, reaching 80.494, before sliding below its previous close by -0.01%. Euro remained below its previous close for most part of the day, currently down 0.2%.

AUD depreciated after reaching an intra-day high of 0.9993, currently trading 0.6% lower at 0.9925. NZD is trading lower against the USD at 0.7585, lower than previous close 0.7618 and intra-day high 0.7647. JPY opened low but recovered, reaching a high of 78.17 before steadily trading in the band of 77.83 to 77.98.

AUD/USD and NZD/USD outlook next 24 hours: Australia's Conference Board leading index, US housing market statistics and key economic data from Europe are to be watched out for. We see AUD/USD and NZD/USD holding between their support pivots of 0.9816 & 0.7523 and resistance pivots of 1.0055 & 0.7717 respectively, barring any big surprises.


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