Daily FX & Market Commentary

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Daily FX Commentary: (Morning Report)

EUR/USD

Initial optimism that pushed the single currency higher was short-lived, as 1.2880/1.2900 barrier proved to be strong. Previous support, reinforced by 55 day EMA and bear-channel resistance, capped today’s rally at 1.2875, with subsequent sharp fall erasing all gains and posting marginally fresh low at 1.2735, channel-support. Return below 200 day MA and psychological 1.2800 support, with today’s close below here, would be a good signal for stronger correction of 1.2042/1.3170 rally, after the pair lost 1.2800 5-week range floor and negative daily studies keep the downside favored. With initial target at 1.2740, mid-June highs and Fib 38.2% being cracked, near-term focus turns towards round figure support at 1.2700 and 90 day MA at 1.2642, another significant support at 1.2600, 50% retracement and daily Ichimoku cloud base, would come in focus on a break below 1.2700/1.2642. On the upside, only break through pivotal 1.2880/1.2900, would provide relief.

Res: 1.2783, 1.2800, 1.2825, 1.2850
Sup: 1.2735, 1.2700, 1.2642, 1.2606


GBP/USD

Failure to sustain gains above 1.6000 and upside rejection at 1.6041, Fib 38.2% 38.2% of 1.6174/1.5956 / 55 day EMA, triggered fresh weakness that fully reversed gains from 1.5956, yesterday’s low. Near-term structure weakens, as hourly indicators slide below the midlines and see risk of revisiting three-week range floor at 1.5900 zone, where also daily Ichimoku cloud base and Fib 38.2% of 1.5267/1.6308 rally lie. Break here to signal stronger correction and expose 200 day MA at 1.5846, next significant support. Any bounce above 1.6000 requires break of minimum 1.6041, to avert immediate downside risk.

Res: 1.6040, 1.6066, 1.6091, 1.6100
Sup: 1.5953, 1.5911, 1.5900, 1.5879


USD/JPY

The pair trades in a choppy 79.80/80.40 range, with downside being vulnerable, as today’s gains failed to clear initial 80.43 barrier and subsequent weakness tests levels below 80.00. Today’s low at Fib 61.8% of 79.27/80.67, comes under pressure, with break lower to confirm hourly double top and signal for stronger corrective action towards key near-term support at 79.27. Daily close below psychological 80.00 level, to confirm negative near-term stance.

Res: 80.00, 80.43, 80.55, 80.67
Sup: 79.80, 79.63, 79.27, 79.00


USD/CHF

Pullback from 0.9454, yesterday’s high, found ground at 0.9380, Fib 38.2% of 0.9275/0.9454 / 200 day MA and subsequent strong bounce, eased bear-pressure that emerged on a break below 0.9430/00, initial supports. Fresh gains through previous highs are looking for test of our next target at 0.9500, also 38.2% of larger 0.9970/0.9213 descend, as bulls returned to play, for continuation of recovery rally from 0.9213, 17 Oct low.

Res: 0.9470, 0.9500, 0.9538, 0.9578
Sup: 0.9436, 0.9430, 0.9400, 0.9380

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Daily Market Commentary: (Evening Report)

London Market Report

Obama-rally' squashed by euro concerns

Market Movers
techMARK 2,088.20 -1.12%
FTSE 100 5,791.63 -1.58%
FTSE 250 11,961.32 -1.00%

The ‘Obama-rally’ proved only temporary on Wednesday as concerns about the Eurozone crisis offset any optimism regarding the re-election of the incumbent US President.

The UK stock market started strongly this morning after Barack Obama comfortably beat challenger Mitt Romney in the US presidential elections, sparking speculation that an easy-money policy would continue under his leadership. The news pressured the dollar lower and, in turn, resulted in firmer prices in greenback-denominated commodities, pushing mining equities higher before noon.

The FTSE 100 reached an eight-month high of 5,921 in mid-morning trade, its highest level since March 19th when it hit 5,961.

However, stocks swung dramatically into the red at midday after the European Commission cut its forecasts for gross domestic product (GDP) growth in the Eurozone this year to 0.1% from 1% before.

To make matters worse, German industrial production contracted at a faster rate than predicted in September, according to figures released today. Output was down 1.8% month-on-month, instead of 0.7% fall expected.

Caution ahead of tonight’s parliamentary vote on austerity in Greece was also weighing on sentiment today, as the government decides whether to go ahead with another harsh round of spending cuts and tax hikes worth €13.5bn.

Meanwhile, US stock opened with heavy losses on Wall Street as worries about the impending ‘fiscal cliff’ - when over $600bn in spending cuts and tax increases are scheduled to come into effect in January - shattered sentiment.

Market strategist Ishaq Siddiqi from ETX Capital said this afternoon: “with the elections out of the way, pressing issues such as the unresolved fiscal cliff are unnerving markets with fears that Obama will unable to forge strong partisan ties with lawmakers against his policies in order to come to an agreement over the fiscal cliff.

“As we know, neglecting the fiscal cliff issue could shave a considerable amount of US GDP, sending the country back into a recession and force credit agencies to strip the US off its prized ‘triple-A’ rating,” he said.

Europe Market Report 

European Markets Weakened Due To Concerns Over Germany

The European markets began Wednesday's session in positive territory, following the announcement that Barack Obama had won a second U.S. presidential term. The markets later reversed after European Central Bank President Mario Draghi stated that the debt crisis in the Eurozone is beginning to have an impact on the German economy. Concerns over the situation in Greece also weighed on investors, as they await the results of a vote in the Greek Parliament.

The Greek Parliament is voting today on a new round of austerity measures. If the parliament votes to approve the measures, then the country will be able to receive the next round of bailout funds. Meanwhile, Greek unions are participating in the second day of a 48-hour strike.

The European Commission expects the euro area economy to come to a standstill next year as domestic demand is likely to remain weak amid high unemployment. In its Autumn Forecast released on Wednesday, the commission slashed its 2013 growth forecast for the 17-nation economy to just 0.1 percent from the 1 percent projected earlier this year.

The economy is expected to shrink 0.4 percent this year, slightly worse than the 0.3 percent contraction forecast earlier. The economy grew 1.4 percent in 2011. Eurozone growth is expected to recover gradually to 1.4 percent in 2014.

The commission also downgraded its growth outlook for the biggest economy in the single-currency bloc. Next year, Germany is expected to grow just 0.8 percent, which is far weaker than the 1.7 percent forecast earlier. The economy is expected to expand 0.8 percent this year.

Germany's independent council of economic advisers were less optimistic than the government on the economy's outlook, according to the council's latest forecasts, handed over to Chancellor Angela Merkel on Wednesday.

The council of the so-called 'wise men' predicts the gross domestic product to grow 0.8 percent in 2012 and 2013, while the government forecasts the economy to grow 1 percent next year, following a 0.8 percent expansion this year.

The Euro Stoxx 50 index of eurozone bluechip stocks declined by 2.23 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, lost 1.48 percent.

The DAX of Germany fell by 1.96 percent and the CAC 40 of France decreased by 1.99 percent. The FTSE 100 of the U.K. dropped by 1.58 percent and the SMI of Switzerland finished lower by 0.71 percent.

Retail sales in the euro area decreased at a slightly faster rate than economists expected in September, after recording a modest increase in the previous month, data released by statistical office Eurostat showed Wednesday.

Retail sales volume decreased 0.2 percent month-on-month in September, reversing the previous month's 0.2 percent rise. Economists had forecast a more modest decrease by 0.1 percent for September.

Germany's industrial production declined 1.8 percent in September from a month ago, the Federal Ministry of Economics and Technology said Wednesday. It follows a slower 0.4 percent drop in August and exceeded a 0.7 percent decline forecast by economists.

Industrial production adjusted for working days, slipped unexpectedly by 1.2 percent annually after falling 1.3 percent in August. Economists had forecast output to grow 0.1 percent.

Germany's construction sector contracted at a faster rate in October, driven by a steep decline in civil engineering activity, data from a survey by Markit Economics showed Wednesday.

The seasonally adjusted purchasing managers' index for the construction sector dropped to 44.6 in October from 48.6 in September. The latest reading was the lowest since July.

Shop price inflation in the United Kingdom accelerated in October, as wet summer lifted food prices, a report from the British Retail Consortium (BRC) revealed Wednesday. Shop price inflation accelerated to 1.5 percent in October from 1 percent in September. Food inflation increased to 4 percent from 3.1 percent in September.

The U.K.'s national output grew at a weaker pace in the three months through October, the monthly gross domestic product estimates by the National Institute of Economic and Social Research (NIESR) showed Tuesday.

The estimates suggest that the output grew 0.5 percent in the three months ending in October after a growth of 1 percent in the three months ending in September.

According to the think tank, the economy is likely to remain in "depression" for two more years. The institute interprets the term "recession" as a period when output is falling or receding, while "depression" is a period when output is depressed below its previous peak.

US Market Report

Worries About Looming Fiscal Cliff Drag Stocks Sharply Lower

With the focus on Wall Street quickly shifting to the looming fiscal cliff and the possibility of higher taxes following President Barack Obama's re-election, stocks have moved sharply lower over the course of the trading day on Wednesday.

The major averages have recently climbed off their worst levels of the day but remain firmly in negative territory. The Dow is down 314.87 points or 2.4 percent at 12,930.81, the Nasdaq is down 71.76 points or 2.4 percent at 2,940.17 and the S&P 500 is down 33.54 points or 2.4 percent at 1,394.85.

The sell-off on Wall Street comes on the heels of news that President Obama won re-election, defeating Republican challenger Mitt Romney.

Obama's definitive victory helped to eliminate some uncertainty, but traders continue to worry about the upcoming fiscal cliff, which could inflict higher taxes and significant spending cuts.

Credit ratings agency Fitch Ratings said failure to avoid the fiscal cliff and raise the debt ceiling in a timely manner as well as secure an agreement on credible deficit reduction would likely result in a rating downgrade for the U.S. in 2013.

"The re-election of President Obama removes one uncertainty that has been weighing on the markets over the last few months," Capital Economics said in a note. "But they are none the wiser about if, how and when Congress will deal with the colossal tightening in fiscal policy scheduled to occur early next year."

"And with Congress still split, President Obama will struggle to garner bipartisan support for a more comprehensive agreement that addresses the longer term issue of how to put the nation's finances back on a sustainable path," the firm added.

Lingering concerns about the financial situation in Europe are also weighing on the markets, with European Central Bank President Mario Draghi saying European economic activity is weak and is expected to remain weak in the near term.

In a speech in Frankfurt, Draghi also said the latest data suggest that the problems in the eurozone are now starting to affect the German economy, which had previously been insulated from some of the difficulties.

Significant weakness has also emerged among defense stocks, which were also expected to benefit from a Romney presidency. The Philadelphia Defense Sector Index has tumbled by 3.5 percent after ending the previous session at its best closing level in over a year.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Hong Kong's Hang Seng Index and Australia's All Ordinaries Index both advanced by 0.7 percent, while Japan's Nikkei 225 Index bucked the uptrend and closed modestly lower.

In the bond market, treasuries continue to see considerable strength but have pulled back off their best levels of the day. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 9.6 basis points at 1.646 percent.