Daily Market Commentary - Share my thought for the day.

China's foreign exchange reserves allocation is close to the global average, which is around 65% in the U.S. dollar, 26% in the euro, 5% in the British pound and 3% in the Japanese yen

mfsforex@hotmail.com — Mon, 06 Sep 2010 01:28:00 GMT

AUDUSD: The Australian dollar moved sideways in a quiet Asian session Friday as traders sat on their hands ahead of a key report on the U.S. job market overnight.

Australian bonds moved lower on both ends of the curve as a report earlier in the week of robust economic growth in the country continued to impact investors' risk tolerance.

In a data-heavy week, much of the Asian data has surprised to the upside, including a 1.2% second-quarter gross domestic product increase in Australia and strong Chinese manufacturing data. Even some reports in the U.S., which has seen a pick-up in global investor concern about its economy in recent weeks, had some strong showings, including the latest ISM manufacturing survey.

Ahead of that report, the Australian dollar gained steadily overnight, only to slide slightly during the day. One Sydney-based strategist attributed the decline to selling by a domestic Australian bank but noted, with thin volumes, there was broad reluctance to trade much before the payrolls report.

We expect a range for today in AUDUSD rate of 0.9000 to 0.9175 (Short above 0.9175, stop loss at 0.9225, target OPEN)

EURUSD: European Central Bank President Jean-Claude Trichet on Thursday announced that the central bank would continue to provide a range of emergency funding to commercial banks through the end of 2010, while also cautiously hailing stronger growth forecasts for the region.

The euro found some modest support earlier in the session after the European Union statistics agency Eurostat reported an unexpected 0.1% rise in July euro-zone retail sales after an upwardly revised 0.2% gain in June. Economists had expected a flat reading.

Final euro-zone purchasing managers index data had little market impact. The figures for August confirmed that private-sector activity in the region saw slower growth last month but still advanced at a healthy pace.

European countries should find a united position on a tussle with the United States over board seats at the International Monetary Fund, said European Central Bank President Jean Claude Trichet Saturday.

Trichet stressed he was speaking personally and that his view was not an official position of the ECB.

He was replying to a question asking him if he thought that European countries should reduce their seats on the IMF board.

The United States is pushing for Europe to cut the number of its seats on the IMF board and give some of them to emerging economies. Last month it took steps to block plans that would diminish Europe's strong position on the board.

EU finance ministers will meet in Brussels at the end of September ahead of the IMF's annual meeting Oct. 8-10.

We expect a range for today in EURUSD rate of 1.2800 TO 1.2900 (Short at 1.2890, stop loss at 1.2940, target OPEN)

USDJPY: The dollar rose Friday, extending an advance on the Japanese yen in the aftermath of stronger-than-expected U.S. payrolls data for August.

The dollar tends to weaken when risk appetite is on the rise as investors pile into equities and other assets perceived to carry a higher degree of risk. The dollar and, to a greater extent, the yen tend to rise when risk appetite falls, as investors seek out safe havens.

U.S. stock index futures and European equities jumped in the wake of the jobs data, in which nonfarm payrolls declined by 54,000 during August, less than the 150,000 forecast by economists surveyed by MarketWatch.

We expect a range for today in USDJPY rate of 84.00 to 85.00 (Long at 84.00, stop loss at 83.50, target OPEN)

More...

China Forex Reserves 65% in Dollar, 26% in Euro and 5% in Pound

mfsforex@hotmail.com — Fri, 03 Sep 2010 01:55:00 GMT

AUDUSD: The Australian dollar was higher late in Asia on Thursday on the back of better-than-expected U.S. manufacturing data, heading into an offshore session packed with event risk.

The local currency weakened a little after the Australian Bureau of Statistics reported the seasonally adjusted balance on trade in goods and services narrowed to a surplus of A$1.89 billion in July from A$3.44 billion in June. Economists had expected a July surplus of A$3.1 billion.

Long AUD/USD was recommended on strong Australian July retail sales and building approvals data as well as narrower-than-expected Australian 2Q current account deficit.

Also, daily chart was supportive of long AUD/USD positions at trade entry as spot had broken above downtrend line from Aug 6 high of 0.9221, bullish parabolic stop-and-reverse signal was hit at 0.8946 on Friday, stochastic measure was rising from oversold, while negative MACD histogram bars were contracting, pointing to increasing upside risks for AUD/USD.

We expect a range for today in AUDUSD rate of 0.9000 to 0.9170 (Short at 0.9170, stop loss at 0.9220, target OPEN)

EURUSD: The euro lost earlier gains Thursday as the recent improvement in global risk sentiment proved short-lived.

However, the single currency did find some support at mid-morning from a successful auction of five-year bonds by Spain, further easing concerns about the euro zone's sovereign debt problems.

A further decline in U.K. house prices, concern that the European Central Bank will prove more dovish than expected after its policy meeting later Thursday and speculation about Friday's non-farm payrolls in the U.S. have all helped to inject caution in trading among major currencies.

In the U.K., Nationwide reported that house prices fell by 0.9% last month, following a 0.5% fall in July. This will only contribute to fears that the U.K. economy is about to slow even further as a big fiscal squeeze gets underway.

Financial markets also appear to be bracing themselves for a more bearish assessment of the euro-zone economy from ECB President Jean-Claude Trichet. Trichet is expected to echo recent comments from Axel Weber, the Bundesbank president and likely successor to Trichet this year, suggesting that there should be an extension of the central banks' extraordinary liquidity provisions into next year. Although there has been strong economic data from core countries in the region, such as Germany, peripheral ones are still seen struggling under tight fiscal regimes aimed at resolving their sovereign debt problems.

We expect a range for today in EURUSD rate of 1.2750 to 1.2850 (Short at 1.2850, stop loss at 1.2900, target OPEN)

USDJPY: Dollar/yen currency options declined slightly in Asia Thursday as players sold hedges against the dollar's downside due to a lack of sharp movements in the underlying exchange rate.

Benchmark one-month at-the-money volatilities edged down to 11.70%/12.40% from 11.80%/12.50% in New York Wednesday. The slight fall came as the dollar stuck to a Y84.12-Y84.55 range, above the 15-year low of Y83.58 marked last week.

Market participants are focused on U.S. jobless claims for the week ending Aug. 28, due at 1230 GMT. Jobless claims may decline slightly to 470,000 from 473,000 in the previous week, according to the median forecast of economists

There is also concern about developments in the U.S. Despite the strong ISM, some analysts are concerned that there could still be downside risks to Friday's non-farm payrolls data for August, especially in the latest jobless claims figures due later Thursday show another sharp rise.

If the data come in below expectations, that could stoke concerns about the U.S. economy and push investors toward safe-haven currencies such as the yen

We expect a range for today in USDJPY rate of 84.00 TO 84.65 (Long at 84.00, stop loss at 83.50, target OPEN)

More...

The dollar extended losses on Wednesday after a measure of U.S. manufacturing activity unexpectedly improved last month

mfsforex@hotmail.com — Thu, 02 Sep 2010 01:05:00 GMT

AUDUSD: The Australian dollar surged in Asian trade after robust second quarter growth figures released Wednesday showed the domestic economy is firing on all cylinders, keeping alive the notion of further rate hikes by the central bank.

Bonds fell and the local currency was strongly bid after data showed the economy grew 1.2% in the second quarter from the first, well above the 0.9% expected by economists.

In the rates market, a pairing of expectations for interest rate cuts meant the three-year September spot contract fell nine ticks to 95.62, while the 10-year contract fell two ticks to 95.22.

"On this long-run view there is no value in the 10-year government bond at current levels. Cyclical considerations mean, however, that we can't rule out a rally to 4.5%. As a consequence we are retaining our modest underweight rather than adding to it at this stage."

We expect a range for today in AUDUSD rate of 0.9000 to 0.9170 (Short any price above 0.9170, stop loss at 0.9220, target OPEN. Note: Short at the current price could possible)

EURUSD: The European Central Bank said Wednesday it allotted $60 million at a seven-day dollar swap tender at a fixed rate of 1.19%.

Demand for the dollar swap facility has been running at a generally stable and low level for the last month. The ECB offers dollars in cooperation with the Federal Reserve to guarantee access to dollar liquidity for euro-area banks unable to get the funds from the market.

The ECB had discontinued its dollar tenders as the signs of tension in international money markets receded in the wake of last year's radical monetary policy stimulus measures on both sides of the Atlantic. However, the tenders were revived after markets froze up again in May on fears over euro-zone sovereign debt levels.

In contrast to the first time, demand at the tenders has been very modest so far.

We expect a range for today in EURUSD rate of 1.2700 TO 1.2880 (Short at 1.2880, stop loss at 1.2930, target OPEN)

USDJPY: The dollar extended losses on Wednesday after a measure of U.S. manufacturing activity unexpectedly improved last month, adding to evidence of pockets of strength in the economy.

The dollar and Japanese yen were under pressure from an earlier U.S. report on employment and a round of stronger Chinese and Australian economic data revived appetite for risky assets and crimped safe-haven flows into the currencies

USD/JPY is back under bear pressure Wednesday as Tuesday's low at 83.83 becomes the focus. A break below there is required to put bears in control of the near-term, prompting further weakness towards the August 24 15-year low at 83.58, and threatening to test the 20-month bull support line of a diagonal triangle at 82.90. Above 84.20 would provide temporary respite, but corrective gains should be limited to the 84.58 high. USD/JPY is at 84.03.

We expect a range for today in USDJPY rate of 84.00 TO 85.20 (Long at 84.25, stop loss at 0.8375, target OPEN)

More...