FOREX, COMMODITIES & STOCKS OUTLOOK 25th August 2010

Overview
Another knock for the risk markets Tuesday with Stock markets lower, across the board. Yesterday also saw major moves in the JPY with USDJPY breaching its 1995 low of 84.45.
Asian stocks fell on Wednesday, with Japan’s Nikkei at a 16-month low, as investors sold riskier assets after a spate of worrying U.S. economic data, while the yen slipped from its lows on a report Tokyo was considering weakening its currency.

Currencies
EURUSD
EUR/USD opened in Asia at 1.2630 today after falling from 1.2670 late in the NY session on news that S&P had downgraded Ireland. From there we managed a low of 1.2616 on residual selling before profit takers emerged in early Asia provided support. Asian bourses have been negative and mostly down over 1% but the currency market consolidated overnight moves, unwilling to break new ground with EUR/JPY buying helping take EUR/USD to a high of 1.2667 so far. EUR/JPY opened at 106.02 after being sold off late in NY on the S&P Ireland news and dipped slightly to a low for the day of 105.90 before the profit taking early and EUR/JPY buying after lunch saw the pair up to 107.00. The usual mission statement comments from the Japanese FinMin saw JPY crosses come off late in the session with the Nikkei last down 1.78% and on its lows for the day. EUR/GBP did little, opening 0.8201 and trading 0.8197/08.
E.Z. data sees German Ifo numbers scheduled for release tonight at 08.00GMT with U.S. Core Durable Goods and New Home Sales a must see tonight given their event risk potential.

GBPUSD
Following the break below key support overnight, cable opened in Asia on its lows at 1.5396, with cable falling late in the NY session on news that S&P downgraded Ireland. This saw EUR/USD fall quickly taking risk pairs along for the ride. Despite the negative lead from Wall Street and the poor performance of Asian bourses today, Cable has regained some lost ground managing a high so far of 1.5433, as the market takes profit and consolidates overnight moves as Asia tends to do. JPY crosses all opened on their lows today following the S&P inspired late NY EUR/USD sell off and have worked their way higher with EUR/JPY buying seen leading the way after lunch although risk is certainly not on today in Asia and the moves we have seen can be put down to profit taking. GBP/JPY opened on its lows at 129.20 steadily worked its way to a 130.30 high so far. EUR/GBP has done little, opening at 0.8201 and trading a 0.8198/07 range so far.
No U.K. data tonight but German Ifo at 08.00GMT and U.S. New Home Sales at 14.00GMT are must see items
USDJPY
Both USD/JPY and EUR/JPY have come off after bouncing to 84.51 and 107.00 post-Tokyo fix. Demand for foreign currency was strong then and short-covering on the increased threat of Japanese solo FX intervention helped. Verbal Japanese intervention will likely help support these pairs going forward. That said, EUR’s trend still looks to be down and USD/JPY too is vulnerable to more moves to the downside with stops now set below 83.50 and 83.00. More are likely in 50-tick increments below, in line were presumed option barriers are probably set. USD/JPY currently trades quietly at 84.22/23 and EUR/JPY at 106.48/51. They saw lows of 83.91 and 105.90 earlier today in Asia. Overnight saw these pairs down to 83.58 and 105.44, respectively

Commodities

Oil
Crude bounced from a seven-week low on Wednesday as investors looked for relief in U.S. durable goods and oil inventory reports due later in the day, after fears of a double-dip recession intensified with dismal housing data. U.S. crude for October delivery added 26 cents to $71.89 a barrel by 0415 GMT, after trading as low as $71.32, replicating Tuesday’s trough, which was the lowest intraday price since July 6. The front-month contract on Tuesday ended at $71.63, the lowest settlement since June 7.
ICE Brent for October rose 45 cents to $72.83 a barrel. Oil slid 2 percent on Tuesday on news that sales of previously owned U.S. homes dropped by a record 27.2 percent in July, sending global equities to one-month lows. Japan’s Nikkei average fell to its lowest in 16 months on Wednesday after the yen hit a 15-year high versus the dollar. But U.S. crude stockpiles unexpectedly fell last week, an industry report showed late on Tuesday, stirring hopes that government statistics due Wednesday would show an improvement in oil demand by the world’s largest user. The front-month U.S. crude contract also touched oversold territory for the first time in three months on Tuesday, according to the relative strength technical indicator, which signals a rebound is to be expected. U.S. crude stocks posted a surprise drop of 1.8 million barrels in the week ended Aug 20, according to a weekly report from the American Petroleum Institute late on Tuesday, ahead of government statistics to be released on Wednesday by the Energy Information Administration at 1430 GMT. Forecasts are for a 200,000-barrel gain, a Reuters poll showed. But U.S. gasoline stockpiles unexpectedly rose by almost 700,000 barrels last week, the API said, while inventories of distillate fuel, including diesel, rose a larger-than-predicted 1.9 million barrels. Last Wednesday, the EIA said U.S. combined commercial stockpiles of crude and refined products in the week to Aug. 13 hit the highest level since weekly records began in 1990, and the highest level since 1980 according to the agency’s monthly data.

Gold
Gold rose on Wednesday despite a slight drop in ETF holdings, with more poor data from the
United States likely to spur buying by investors worried about the health of the global economy.
But thin volume ahead of the release of U.S. durable goods data showed the gains were driven mainly by speculators as higher prices also spurred selling of gold bars in Singapore. Gold added $1.40 to $1,230.65 an ounce by 0324 GMT, having dropped to its weakest level in nearly two weeks around
$1,210 on Tuesday before bouncing to more than $1,235 after sales of previously owned U.S. homes took a record plunge in July. U.S. gold futures for December delivery fell $1 to $1,232.4 an ounce after rising as high as $1,237.50 on Tuesday. In theory, economic worries will lift gold’s safe haven appeal in times of uncertainty, but the metal’s previous attempts to hit new highs have been met by profit taking. Gold struck a lifetime high around $1,264 an ounce in June. The world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings slipped to 1,297.948 tonnes by August 24 from 1,299.468 tonnes on August 19. The holdings hit a record at 1,320.436 tonnes on June 29.

Markets
US Markets
U.S. stocks fell to their lowest level in seven weeks on Tuesday as an unexpectedly large drop in home sales ratcheted up concerns that the economic recovery is even weaker than had been feared. The Dow and S&P 500 racked up their fourth day of losses in a row after an industry group reported that sales of U.S. existing homes in July fell to their slowest pace in 15 years. With housing a linchpin of the U.S. consumer economy, the latest data cast doubt on the pace of recovery and added fuel to investors’ recent search for safety. Prices of U.S. Treasuries soared, sending two-year yields to another record low. On the S&P 500, defensive plays telecoms and utilities were the only sectors to gain for the day.
Economically sensitive companies were the biggest drags on the Dow, including plane maker Boeing, which fell 3.7 percent to $60.93. Banks were also among hardest hit shares, with the KBW Bank index down 2.2 percent. Home building and related stocks slipped but came off their lows after hitting technical support. The PHLX housing index fell 1.1 percent to 89.53, clawing back from a 3 percent
drop after it encountered support near its July low, right above 87.

The Dow Jones industrial average fell 133.96 points, or 1.32 percent, to 10,040.45.
The Standard & Poor’s 500 Index shed 15.49 points, or 1.45 percent, to 1,051.87.
The Nasdaq Composite Index lost 35.87 points, or 1.66 percent, to 2,123.76.

European Markets
European shares fell to a one-month closing low on Tuesday as disappointing U.S. housing
data underscored concern over the pace of recovery in the world’s largest economy. The pan-European FTSEurofirst 300 index of top shares closed down 1.6 percent at 1,019.52 points, its lowest close since late July, after ending higher a day earlier on a pick-up in merger and acquisition activity. Data showed sales of existing U.S. homes fell more steeply than expected in July to a 15-year low, suggesting the economic recovery could be losing momentum. The downbeat data also drove investors into safe-haven bonds, with German Bund futures hitting a new record high.

Across Europe, Britain’s FTSE 100 , Germany’s DAX and France’s CAC 40 were down 1.3 to 1.8
percent.

Asian Markets
Asian stocks fell on Wednesday, with Japan’s Nikkei at a 16-month low, as investors sold riskier assets after a spate of worrying U.S. economic data, while the yen slipped from a 15-year high on a report Tokyo was considering weakening its currency. The dollar rose 0.6 percent against the yen to 84.37 yen on short-covering, having pulled up from a 15-year low of 83.58 yen hit on trading platform EBS on Tuesday. Adding to investors’ worries about exposure to riskier assets, key U.S. stock indexes fell as much as 1.7 percent overnight after an unexpected plunge in existing home sales amplified fears that the economy could be sliding into a prolonged period of stagnation or even recession. Chicago Federal Reserve Bank President Charles Evan said the risks of a double-dip U.S. recession have risen in the last six months. While he added he did not think that was the most likely scenario, he said high unemployment and a fractured housing sector would make the recovery a fragile one. U.S. stock futures, though, were up 0.3 percent on Wednesday, with bargain hunters expected to provide some support. That eased the blow on Asian stock markets, but an unmistakable falling trend in government bond yields around the world reflected deep unease about the prospect of another recession.
Japan’s Nikkei share average fell 0.85 percent after earlier hitting the lowest since May 2009.
The MSCI index of Asia Pacific stocks outside Japan slipped 0.35 percent.

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