Logo

The New Zealand dollar pushed to a high of 0.7095 on Monday as investors raised their appetite for risk, while the Japanese Yen failed to hold ground against the greenback and halted its three-day rally, with the exchange rate rising to a high of 91.77.

The New Zealand dollar pushed to a high of 0.7095 on Monday as investors raised their appetite for risk, and the high-yielding currency may continue to retrace the sell-off from earlier this month as market participants speculate the Reserve Bank of New Zealand to normalize policy during the middle of 2010. The NZD/USD remains higher from the open after moving 46% of its ATR, and appears to be finding intraday resistance around the 10-Day SMA at 0.7095 as the RSI falls back from overbought territory. As a result, we may see the pair fall back from the high and fill-in the gap from the 100-SMA at 0.7068, and the pair is likely to hold a narrow range throughout the week as investors remain off-line ahead of the New Year.

The Japanese Yen failed to hold ground against the greenback and halted its three-day rally, with the exchange rate rising to a high of 91.77, and the exchange rate is likely to trend sideways over the week as market liquidity remains thin ahead of the New Year. The USD/JPY is slight higher from the open after moving only 32% of its average true range, and the pair may continue to retrace the decline from October as price action holds above the 100-Day SMA at 90.80. Nevertheless, the dollar-yen is likely to hold steady going into the Asian trade as the economic docket lacks market-moving potential, and we may see the pair move along the 100-SMA at 91.46 as risk trends continue to dictate price action across the currency market.

The US dollar and Japanese yen dipped lower across the majors on Monday as optimism on global growth helped to spur demand for riskier assets, such as equities and the commodity dollars. According to MasterCard Advisors’ SpendingPulse, US retail sales rose an estimated 3.6 percent between November 1 and December 24 as consumers ramped up their purchases the week before Christmas and online. Additionally, the Dallas Fed manufacturing outlook survey showed improving sentiment during December, as the index rose to two-year high of 3.8 from 0.3. A breakdown of the report shows that new orders and prices are on the rise, but the production component eased back, suggesting producers are trying to limit inventory buildup.

Looking ahead to Tuesday, the Conference Board's measure of consumer confidence is expected to rise for a third straight month in December to 53.0 from 49.5. Other indicators of consumer sentiment, such as the University of Michigan's index, bode well for this upcoming release as the report showed an improvement to 72.5 in December from 67.4. All told, further increases would add to evidence that spending rose through the end of December as consumers shopped ahead of the holidays. Additionally, the S&P/Case-Shiller home price index is expected to rise for a sixth straight month in October to a nine-month high of 147.00 from 146.51, suggesting that the government's efforts to stabilize the housing market through tax incentives for buyers has been working. Indeed, last week's release of NAR existing home sales has indicated a steady increase demand, though sales of new homes have remained volatile.

Overall, it’s important to keep in mind that volumes will remain low through the rest of the week, which is likely to translate into range-bound price action until traders return next week. When it comes to the JPY crosses, though, last week’s break higher in the S&P 500 signals increased bullish potential.

The British Pound consolidated losses below 1.60 to the US Dollar, the lowest level in over two months, as the Bank of England prepared to release the minutes from December’s monetary policy meeting.

Key Overnight Developments

• New Zealand Gross Domestic Product Disappoints in Third Quarter
• Euro, British Pound Consolidate in Narrow Ranges Through Asian Trade

Critical Levels



The Euro and the British Pound consolidated in narrow ranges through Asian trading hours as Japanese markets closed for the Emperor’s Birthday holiday and overall liquidity thinned out ahead of the Christmas holiday that will shut down most major exchanges later in the week. We remain short EURUSD at 1.4881 and short GBPUSD at 1.6648.

Asia Session Highlights



New Zealand Gross Domestic Product figures disappointed, revealing the economy grew 0.2% in the third quarter. Economists had predicted a 0.4% expansion ahead of the release. Looking at the report’s details, consumption growth accelerated to add 0.7% after gaining 0.4% in the second quarter, but the pace of contraction in business investment accelerated to -0.9% versus -0.4% in the three months to June. The external sector also yielded lackluster results as exports failed to grow for the first time this year. The New Zealand Dollar declined to test a low of 0.6973 against its US counterpart after the data crossed the wires, but any significant follow-through seems unlikely considering the market’s yield expectations look virtually unchanged in the aftermath of the announcement. Indeed, a Credit Suisse gauge of the priced-in interest rate outlook has called for borrowing costs to rise 203 basis points over the next 12 months since last Friday.


Euro Session: What to Expect



The publication of minutes from December’s Bank of England policy meeting may prove of little interest with traders widely expecting the central bank to remain in wait-and-see mode until it completes and assess the impact of November’s 25 billion pound expansion of its quantitative easing (QE) program in February. Recent inflation figures have supported projections of a near-term upswing made in the latest quarterly inflation report, so there seems little reason to change gears for the time being. Still, traders will keep an eye out for any discussions about cutting the interest rate it pays on bank deposits as an additional avenue to boost lending, a proposal that surfaced in November’s minutes. An article from the Daily Mail crediting "authoritative sources" as saying that the BOE’s rate-setting committee is leaning towards expanding QE by another 25 billion at some point in 2010 may also contribute to volatility surrounding the release.

The currency market is likely to remain quiet as the economic calendar clears out in European trading hours but thin liquidity conditions may prove to amplify volatility to produce significant momentum as November’s US Durable Goods Orders figures cross the wires late into the session.

Key Overnight Developments

• BOJ Meeting Minutes Show Policy to Remain “Extremely Accommodative”
• Euro, British Pound Keep to Narrow Ranges in Thin Holiday Trading

Critical Levels



The Euro consolidated below the New York session high at 1.4366 while the British Pound continued to oscillate in a choppy range below 1.60. We remain short EURUSD at 1.4881 and short GBPUSD at 1.6648.

Asia Session Highlights



Minutes from November’s Bank of Japan monetary policy meeting offered little by way of new insight. Policymakers said the economy is picking up but still needs close monitoring. The bank reiterated that is would stand ready to respond promptly to market movements and promised to keep monetary policy “extremely accommodative”. A representative from the Ministry of Finance that sat in on the meeting urged the BOJ to recognize the risk of deflation, which seems to have come through in the central bank’s latest interest rate decision as well as December’s monthly report.


Euro Session: What to Expect



The economic calendar is empty in European hours, with a quiet session likely ahead as traders turn their attention away from price action for the Christmas holiday. That said, thin liquidity conditions may prove to amplify volatility to produce significant momentum as November’s US Durable Goods Orders figures cross the wires. Expectations call for an increase of 0.5% versus a -0.6% decline in the previous month, which may help underpin traders’ Federal Reserve rate hike expectations after a Credit Suisse gauge of the priced-in yield forecast for the coming year dropped 5.4% and led the US Dollar lower in New York trading following disappointing New Home Sales figures.

Currency markets are exposed to knee-jerk volatility in thin holiday-week liquidity conditions with a close to empty European and US economic calendar leaving traders without a tangible near-term catalyst for price action.

Key Overnight Developments

• Japan’s Industrial Production Rises on Car Exports, Domestic Demand Weak
• UK House Prices Rose For Fifth Month on Falling Supply, Says Hometrack

Critical Levels



The Euro consolidated in a narrow 40-pip range below 1.44 while the British Pound yielded an effectively flat result after recovering from an initial -0.2% drop at the start of Asian trading just ahead of the opening bell in Europe. We remain short EURUSD at 1.4881 and short GBPUSD at 1.6648.

Asia Session Highlights



Preliminary estimates showed that Japan’s Industrial Production grew 2.6% from the previous month in November, a reading slightly higher than economists expected and the largest increase since May. Output declined -3.9% from a year before, the smallest drop in 14 months. Transport equipment led the metric higher, up 1.1% from the previous month with a 0.78% gain in passenger car, bus and truck production at the forefront. Autos are Japan’s primary export and today’s outcome likely owes to a rebound in overseas demand driven by ample global fiscal and monetary stimulus efforts. Indeed, exports gained 4.9% from the previous month in November, the most in over 13 years, with metrics tracking vehicle shipments to Asia and the US turning positive for the first time in at least six months.

Meanwhile, Japanese domestic demand remained lackluster as Labor Cash Earnings fell -2.8% from the previous year in November, the third consecutive month of deteriorating wages and the biggest drop since June, weighing on spending. Retail Trade shrank at an annual pace of -1.0%, marking the first time that the metric has not improved since February, while a gauge of large retailers’ sales dropped -9.6% to register the largest decline in nearly 12 years. It remains to be seen whether a sustainable rebound in overseas sales will encourage firms to re-hire workers and boost incomes, but for the time being Japanese companies seem content to do more with less. Indeed, labor market data released last week showed that the number of employed people declined at the fastest annual rate in four months in November.

In the UK, the Hometrack Housing Survey showed that property prices will probably decline at the slowest pace in 19 months in December, falling -1.9%. On a monthly basis, prices probably rise 0.1%, marking the fifth consecutive period of growth. The details of the report were far less encouraging then the headline figure, however, hinting that shallow supply rather than recovering demand were behind the rebound in home values. Indeed, the number of newly listed properties declined -0.8% while the number of new buyers fell -2.2%.


Euro Session: What to Expect



The European economic calendar is empty and only minimal event risk is scheduled for release as US markets open late into the session with December’s edition of the Dallas Fed’s gauge of manufacturing activity set to cross the wires. This leaves the currency markets wanting of a tangible catalyst for price action, opening the door for plenty of knee-jerk volatility in thin holiday-week liquidity conditions. We will continue to hold our long-term positions but would certainly lean against taking on any new exposure in this environment.

The Swiss franc strengthened earlier this week as the Swiss National Bank announced it will conclude its corporate-bond purchase plan ahead of the following year, but ended the week lower against the U.S. dollar and the euro, with the exchange rates rising to a fresh monthly high of 1.0364 and 1.51440, respectively. The shift in the market trend suggests that the greenback, which has been the primary funding currency in 2009, is being substituted by the traditional low-yielding currencies like the Japanese Yen and Swiss franc as the outlook for global growth improves.

Switzerland’s central bank held the benchmark interest rate at 0.25% in December and no longer saw a need to “intervene and buy more bonds” as “the spread in the Swiss franc bond market” narrows, and pledged to respond to “any excessive” moves in the exchange rate in order to encourage a sustainable recovery. SNB President Jean-Pierre Roth said that monetary policy “has been effective” after purchasing CHF 3.0B ($2.9B) in corporate bonds since March to counter the financial crisis, and expects economic activity to expand 0.5%-1.0% in 2010 after contracting at an annual pace of 1.5% this year. At the same time, the Mr. Roth held a dovish outlook for price growth and said that the outlook for inflation remains “associated with downside risks,” and the board is likely to maintain its current policy over the following year as Vice-President Philipp Hildebrand is scheduled to take helm of the central bank in 2010. Meanwhile, Mr. Hildebrand argued that normalizing policy in the following year will be the “biggest challenge” as the global financial system remains fragile, but saw little risk for a credit crunch within the region as the economy emerges from the recession.

As the SNB withdraws its emergency program and softens its rhetoric to intervene in the foreign exchange market, the low-yielding currency may continue to lose ground as the USD/CHF and EUR/CHF breaks out of its recent range however, we may see the Swiss franc bounce back over the following week as the economic docket is expected to reinforce an improved outlook for the region. Swiss producer and import prices are forecasted to grow 0.1% in November after falling 0.4% in the previous month, while the annualized rate is expected to contract 3.1% from the previous year after tumbling 4.7% in October. Moreover, industrial outputs are projected to weaken 0.1% in the third quarter after surging 2.7% during the three-months through June, and the slew of data could spark increased volatility in the exchange rate as investors weigh the outlook for future growth

An uneventful week of British economic event risk left the domestic currency modestly lower against the resurgent US Dollar through Friday’s close. A hotly-anticipated Bank of England interest rate announcement failed to elicit major reactions from FX markets. Instead, the week’s major British Pound volatility came on news that Moody’s Investor Services expressed doubts on the future of the UK’s sovereign debt rating. Such unexpectedly sharp volatility on unpredictable news underlines FX market unease, and it remains clear that currencies can post substantial moves at a moment’s notice. The week ahead promises considerable economic event risk out of both the UK and US economies, and we expect similarly large moves in the GBPUSD through the week ahead.

Recent doubts on outlook for UK debt ratings are likely to continue through the medium to long term, as large budget deficits and a fast-growing national debt have forced rating agencies to question whether major world governments’ debt truly deserves “risk-free” status. Any further suggestions that the UK’s AAA rating is at risk could easily force substantive pullbacks in the domestic currency. But foreseeable event risk can likewise cause major moves—starting with highly-anticipated UK Consumer Price Index data due Tuesday morning.

Analyst forecasts call for a robust 1.8 percent year-over-year Consumer Price Index inflation rate through November—a 0.3 percentage point jump from the 1.5 percent seen in October. Such an outcome would leave the headline inflation rate at a mere 0.2 percentage points below the Bank of England’s 2.0 percent inflation rate, and the noteworthy month-to-month change may become a cause of concern for the inflation-targeting central bank. Said result would likely raise pressure on the Bank of England to state its “exit plans” for removing its historic monetary policy stimulus and raise interest rates to combat inflation. Officials have already committed to ending the bank’s Asset Purchase Programme in two months, but they have otherwise provided few clues as to plans for ending their historic monetary policy stimulus. Suffice it to say, markets will remain on alert for surprising results from upcoming CPI inflation numbers and their implications for the future of interest rates and Quantitative Easing.

Not to be outdone, the following day’s UK Jobless Claims data will likely provide considerable short-term volatility for the British currency. Markets predict that jobless claims rose by a relatively modest 12,500 through November—the smallest job loss since April, 2008. Given similarly bullish jobs data out of the US economy, markets are riding high on prospects for broader global economic recovery. Such optimistic expectations leave considerable margin for disappointment, and it will be important to watch whether UK Jobless Claims data can match lofty expectations.

The Japanese Yen was the top-performing G10 currency to round out the week’s trade, breaking its long-standing correlation to major risky asset classes and finishing higher despite relative outperformance in the US S&P 500. The Japanese Nikkei 225 index likewise ended the week’s trade up a respectable 0.9 percent above its open—making Yen strength an admittedly unexpected outcome. Key questions remain on the sustainability of the Japanese Yen’s advance, however, as recent IMM data points to extremely one-sided speculative positioning on the US Dollar/Japanese Yen pair. Indeed, our recent forex options and futures sentiment data showed large speculators had been the most net-long Japanese Yen since it set a noteworthy bottom in March, 2008. Speculative sentiment has since moderated considerably, but such COT data supports further JPY pullbacks and not continued appreciation.



The break in the Yen’s typically rock-solid correlation to risky asset classes makes predicting near-term price action far more difficult, and it seems increasingly likely that the USDJPY will primarily trade on developments in the US economy. The US Dollar itself likewise broke its correlation to the US S&P 500 and other risky asset classes—rallying despite stock market strength. A string of positive US economic releases may partly explain the break, and we may do well to watch a string of key US event risk in the days ahead. Hotly-anticipated US Consumer Price Index data and the US Federal Open Market Committee rate decision will likely dominate US Dollar price action, while the Japanese Yen could move on any surprises out of the upcoming Bank of Japan rate announcement.

Markets overwhelmingly predict that the Bank of Japan will leave interest rates unchanged at their upcoming meeting, but it may be important to watch for any and all references to the Japanese Yen. FX markets had recently forced the JPY to its highest levels in over a decade, but very quickly reversed course on vague threats of FX market intervention from the Ministry of Finance and Bank of Japan. Given deflationary headwinds for the Japanese economy, the central bank is staunchly against further Yen appreciation. Whether or not they comment on the fact may force substantive currency volatility in the week ahead.

Despite the breakdown in correlation between the Japanese Yen and global risky asset classes, we suspect that any major moves in global markets will force commensurate shifts in FX markets. The week ahead promises several top-tier pieces of US and Japanese economic event risk, and we expect big short-term moves from the USDJPY. Suffice it to say, traders should be on alert for substantive surprises out of a key number of highly-anticipated events.

The euro’s biggest fundamental driver is the health of the US dollar. This past week, the greenback forged ahead and the euro suffered for it across the board. As the primary alternative to the US currency, there has been a frenzied demand for the euro as the need for return and stability sent capital into the large market. However, when the tides turn and the expectations for return in the United States improves and the irrational fear that the benchmark currency will not just loose prominence but completely fall off; speculative capital will reverse course. At the same time, there are also factors for a fundamental weakening of the Euro Zone itself. The economic and interest rate outlook are cooling, especially when compared to the region’s industrialized counterparts. And then there is also the instability that member default and/or possible withdrawal from the union may bring.

Over the past few weeks, fear has gained traction among the speculative crowd. With the markets bound to general congestion for the better part of two months, traders are naturally going to grow weary of potential reversal threats. Initially, panic was sparked by Dubai World’s default/debt restructuring. Now, the focus is turned to mainland Europe. In quick succession, we have saw Greece’s sovereign credit rating downgraded and the outlook for Spain reduced to ‘negative.’ This speaks to the economic troubles that exist outside of Germany and France and the lack of flexibility that policy makers have in stabilizing individual economies and markets. Finance Ministers cannot take on more debt than the Union allows, devalue their currency or adjust interest rates to help their economies along. This leaves restrictive parameters on nations that perhaps cannot recover naturally and must either seek bailouts (which will take many years to work off) or consider withdrawal from the regional collective. Either outcome could severely undermine the stability of the euro.

Another gradual shift against the euro is its perceived fundamental strength. Six to nine months ago, speculators expected the Euro Zone would be the first of the major economies to recovery from the global recession and its policy authority would usher in the revival of yields. However, as the months passed; it became more and more clear that the European economy was seen falling further and further back in the pack for growth and the ECB maintained a solid front against raising interest rates until a recovery was certain. Today, growth for the region is expected to trail that of the US and Japan; and there isn’t even a clear outlook for a return to hawkish policy by the middle of the year (which is the time frame the Fed is working with). So, gradually, the fundamental advantages are slipping away from the euro; and fresh data is now gauged for its ability further throw the breaks or perhaps increase competitiveness. On this front, we have plenty of key indicators to work with over the coming week. For growth, the December PMI indicators for Germany and the Euro Zone will offer key benchmarks for 4Q activity. For the ECB, regional inflation indicators will tell officials whether they should start responding with measured rate hikes to compliment other efforts to rein in policy. Altogether, expect these indicators to offer short-term volatility and fine-tune adjustment to larger fundamental bearings; but meaningful trends will fall to the dollar and potential crisis.

There is a trend developing. The US dollar has produced notable rallies at the end of each of the past four weeks. The past two advances are the most notable. Both have come on the back of exceedingly strong economic data – the drive on the 5th was the product of strong NFPs and a drop in the unemployment rate; while the rally on the 12th would come through the merits of a strengthening consumer on sentiment and spending. This would seem a straightforward reaction to data, right? Actually, this would contradict the normal pace that the market has carved for the greenback for the past nine months where strong economic data has bolstered risk appetite and directly weighed on the dollar as a safe haven currency. So, what does this mean? Is the dollar’s role in the risk appetite backdrop changing? Is sentiment actually weaker than just the US data would suggest? Both are likely true. With the dollar looking for strength through various market conditions, the currency may be developing a meaningful bullish trend. However, playing on the well-established, fundamental roles that have been in control for over a year; a collapse in broad investor sentiment is still the most accessible catalyst for a true dollar bull trend.

As has been the case for the full year, the primary fundamental concern for the US dollar going forward is the general bearing and force of risk appetite. From this, there are two concerns. As always, identifying and measuring the influence of potential catalysts is of primary importance; but now, we also have to gauge the currency’s relationship to risk appetite itself. In the past few weeks, while the dollar’s advance has been somewhat choppy and more prominent in certain pairs (EURUSD being the most remarkable example); it has come on strong local data and developed despite stability in other key risk-sensitive markets. This is a natural development considering markets held to congestion for nearly two months now at the top of an unprecedented rally; and the dollar has carried the brunt of the burden in funding this drive. Beyond just a general dissolution of correlations, though; there are fundamental reasons for the dollar to move up the yield spectrum. The United State’s economic recovery is among the strongest in the industrialized world, the Federal Reserve is actively reducing its stimulus and the financial stability in the US markets is comparable (if not more established) to its global counterparts. All that being said, a collapse in risk appetite that balances speculative interests through profit taking is still the most capable driver for the dollar. Not only would capital return to the safety of US Treasuries and money market funds; but it would be drawn out of emerging markets and other risky areas and put into the more liquid but yield-bearing instruments in the US.

For the more definable sense of risk in this coming week’s economic docket; there is plenty of data to feed the more established fundamentals trends. For interest rate forecasts, the market is targeting the Fed’s first hike around the middle of the year – in line with Governor Bernanke’s time frame. However, such projections are not set in stone by policy makers and traders know this. The FOMC rate decision on Wednesday will offer an update on how close a hike may be. Also, interesting in this event will be any mention of more measured changes to policy like the slow withdrawal of stimulus. Realistically, stimulus and interest rates can be adjusted separately. If financial aid is maintained and rates raised, it could support the economy, help dampen any inflation that may pop up and revive the dollar. Other noteworthy indicators on deck included the CPI stats, industrial production, housing starts and the vote to lift the deficit limit.

Mumbai: IndiaInfoline (IIFL) is bullish on Reliance Capital and has recommended a buy rating on the stock with a target of Rs. 870. According to IIFL, despite extreme volatility in the broader market, Reliance Capital managed to close above its 20 daily moving average (DMA) on Friday. The brokerage says that on the upper side, the stock could face stiff resistance around the levels of Rs. 865-870.


Reliance Capital is a financial services company that has interests in asset management and mutual funds, life and general insurance, private equity investments, stock broking and depository services, consumer finance, asset reconstruction, institutional broking and distribution of financial products. The company operates in five segments: finance and investment, asset management, general insurance, consumer finance and others. Reliance Capital is a part of the Reliance Anil Dhirubhai Ambani Group.

According to IIFL, any sort of short-covering above the levels of Rs. 870, could take the stock up to the levels of Rs. 900 in the medium term. Based on the above analysis, we recommend traders to buy the stock between the levels of Rs. 828-836 for an initial target of Rs. 870, says IIFL. With the recommended target price, if the stock is bought at Monday's closing price of Rs. 832.60, the percentage of gain would be 4.49 percent.

Mumbai: India's UTI Asset Management on Monday offered 30 of its mutual funds for transaction through the National Stock Exchange (NSE), becoming the first fund house to take advantage of the vast distribution network of the exchange.

The Securities and Exchange Board of India (SEBI) had earlier this month permitted stock exchanges to offer their infrastructure for fund transactions, giving them access to more than 200,000 terminals in over 1,500 towns and cities countrywide, reports Reuters.


"The industry gets six percent of household savings. The move will help us get more share of household savings," said U.K. Sinha, Chairman of UTI. UTI is India's oldest and fourth-biggest mutual fund firm. It had average assets of Rs. 768.5 billion in October, more than 10 million client folios and a presence in 460 districts, offering one of the biggest distribution networks in India.