Markets | 12/11/2014 | Sterling Capped Ahead of BoE Inflation Report

 Yen Drops on Election Speculation. The yen reached a fresh 7-year low against the dollar on Tuesday, hit by reports that Japanese Prime Minister Shinzo Abe is considering holding a snap election and posting, or cancelling, a sales tax increase expected in 2015. Abe is considering a vote on Dec. 14 or Dec. 21 after deciding on the tax increase, Japan’s Yomiuri newspaper reported, citing senior members of the government and the ruling Liberal Democratic Party. “It all ties together how the tax hike is going to impact the economy, and that’ll influence how the Bank of Japan’s going to achieve the 2% inflation target,” Eric Viloria, a strategist at Wells Fargo & Co. in New York, said in a phone interview. “We see the dollar a buy-on-dip.”

 Aussie Firms After NAB Report. The Australia’s dollar strengthened against all its major peers on Tuesday after National Australia Bank Ltd. said business conditions rose the most on record in October, to reach the highest since February 2008. The so-called Aussie also bolstered by separate data showed Australian home prices rises 1.5% in the third quarter. The antipodean currency had fallen to a 4-year low late last week as declining commodity prices clouded prospects for the Australian economy.

 Sterling Capped Ahead of BoE Inflation Report. Sterling gained on Tuesday, but still trading near a 14-month low against the dollar, as investors awaited the Bank of England's inflation report and official wage data. Subdued growth in wage data would bolster expectations that the first rate hike from the Bank of England since 2007 is unlikely to come before the second half of 2015, keeping sterling under pressure. The quarterly inflation report on the same day is expected to revise down near-term inflation forecasts on lower energy and food prices. "The market should be more sensitive to negative surprises in the wages data," said Jonathan Webb, head of FX strategy at Jefferies. “Inflation Report could have a dovish bias and that would keep the pressure on sterling.”

Ukraine’s Ceasefire Looks Fragile. Heavy shelling resumed around the pro-Russian separatist stronghold of Donetsk in eastern Ukraine on Tuesday, a Reuters witness said, increasing concerns a ceasefire between the rebels and government forces could crumble. Sporadic violence has flared since the Sept. 5 truce in a conflict that has killed more than 4,000 people but truce has looked particularly fragile in the past week, with separatists and the central government accusing each other of violations. Donetsk was pummeled at the weekend by the heaviest shelling in a month and on Tuesday the Ukrainian army accused rebels of preparing for renewed conflict.

 

Asian Markets Higher With Nikkei Outperform. Overall Asian equity markets closed higher on Tuesday following a record close on Wall Street, with Japanese markets outperforming the region. Japan's Nikkei rose 2.05 percent and hit a seven-year high on Tuesday as speculation swirled that Prime Minister Shinzo Abe may postpone a planned sales tax increase and a positive economic data. While domestic data showing September's current account balance and Japan bank lending both rose and lifted sentiment. South Korean shares index - KOSPI ended at its highest levels this month with rising 0.24 percent for a fourth straight session, following news of a free-trade deal with China on Monday. Hong Kong shares finished up 0.27 percent on Tuesday, as Hong Kong investors much bought into Chinese banking shares connected with the upcoming launch of a cross-border stock investment scheme that will connect the two markets.

European Stocks Advance as Vodafone Climbs. European stocks ended the day in the green, after fluctuating throughout the day. Better earning results from Vodafone Group Plc and Henkel AG helped index performance as mining stocks still underperformed. Vodafone advanced the most in 14 months after saying services revenue fell slower than analysts’ estimated. That pushed a gauge of telecommunications companies to the highest level since March 2008. German consumer goods group Henkel gained 4.8 percent after the maker of Dial soap and Persil detergent raise its full-year margin projection. But, commodity producers and energy companies slide as oil hover near its lowest level in 3-year and Citigroup warned iron-ore prices will plunge below $60 next year. Germany’s DAX and France’s CAC rose 0.18% and 0.50% respectively while FTSE gained 0.24%.

Wall Street Stayed Near Record. Wall Street closed around highs on Tuesday as investors found little impetus to move decisively in one direction or the other. The closing of bond market in observance of Veterans Day holiday contributed to lower volume and less-volatile days. Alibaba Group Holding slid as the Chinese e-commerce company's shopping holiday sales cleared the $9 billion mark; D.R. Horton rose after the homebuilder reported better-than-expected quarterly revenue; Groupon climbed after the online provider of daily deals provided revenue guidance for 2015 above estimates. Dow Jones and Nasdaq rose 0.01% and 0.19% respectively while S&P500 gained 0.07%.

Physical Buying Supported Gold’s Performance. Gold rose as demand for physical metal picked up after the previous day's 2 percent slide. Physical buying gathered pace in Europe and major consumer China on Tuesday, supporting prices after dollar strength had knocked them lower. A 0.4% fall in the dollar index took some pressure off of gold. Nevertheless, gold's inability to retain Friday's 3% jump suggests investors are selling into rallies, expecting more losses on the back of the U.S. economic recovery, a robust dollar and expectations that the Federal Reserve will raise rates sooner rather than later.

Crude Oil Reverses Losses. U.S. crude prices managed to settle higher on Tuesday amid worries about growing U.S. Supplies. A strong dollar initially weighed on oil as the greenback hit a seven-year high against the yen. By mid New York session, profit-taking was emerged in US Dollar and then give traders excuses to cover their short oil positions. Fear of supply disruptions in Libya, where a rival government seized the country's capital and took control of its most productive oilfield, El Sharara, helped limit the downside in oil earlier in the session, traders said. Nevertheless, oil’s performance still fragile amid signs the Organization of Petroleum Exporting Countries isn’t prepared to tackle the global supply glut.

 

Microsoft Unveils Lumia Smartphone Without Nokia Name. Microsoft said it would roll out its Lumia 535 smartphone this month with an affordable price tag in its key markets, dropping the Nokia name just months after buying the Finnish company's handset business. Loaded with its latest Windows Phone 8.1 operating system, the Lumia 535 and Lumia 535 dual SIM will be priced at around 110 euros (about $137) before taxes and subsidies, Microsoft said in a statement. The phone will feature a wide-angle 5 megapixel front-facing camera and a 5-inch qHD display screen, the company said. Microsoft had said in the past it planned to license the Nokia brand for its lower-end mobile phones for 10 years and to use the name on its smartphones only for a "limited" time, without saying how long that might be.

Rio Hope Oyu Tolgoi Project Can Be Extended. Rio Tinto Group sees a change of leadership in Mongolia as potentially positive for the stalled $5.4 billion expansion of the Oyu Tolgoi project, while leaving open the prospect for another writedown at the mine. The ouster of former Prime Minister Altankhuyag Norov last week comes as London-based Rio and Mongolia’s government continue negotiations on disputes around taxes and costs that have held up progress for more than 18 months on an underground extension to the copper and gold mine -- Mongolia’s single-biggest foreign investment. “I’m hoping it will be a positive sign,” Chief Executive Officer Sam Walsh said in an interview with Bloomberg Television, at the Asia-Pacific Economic Cooperation forum. “Certainly there are a lot of things that are indicating that people want the project to proceed.”

 

Technical Outlook

EUR/USD. The bias is bearish in nearest term especially if price able to make a clear break back below 1.2400 area to trigger further bearish momentum aiming 1.2340 region. On the upside, only a clear break back above 1.2500 area would trigger further bullish correction scenario retesting 1.2530 region.

           
GBP/USD. The bias is bearish in nearest term but we need a clear break back below 1.5850 area to trigger further bearish pressure targeting 1.5790 support area. On the upside, only a consistent break above 1.5950 area would trigger further bullish correction scenario perhaps retesting 1.6000 area as price getting oversold.

         
USD/JPY. The bias is bullish in nearest term especially if price able to make a clear break above 116.20 area to trigger further bullish momentum targeting 116.85 resistance area. On the downside, only a clear break back below 115.20 area would trigger further bearish correction scenario retesting 114.50 area before recovery to the upside.

           
USD/CHF. The bias is bullish in nearest term especially if price able to make a clear break above 0.9700 area to trigger further bullish momentum aiming 0.9750 area. Immediate support is seen around 0.9615 area, another consistent break below that area would bring the price to neutral zone as direction would become unclear in nearest term perhaps retesting 0.9575 region.

        
 AUD/USD. The bias is bearish in nearest term but we need a clear break below 0.8580 area to trigger further bearish momentum aiming 0.8540 area. Immediate resistance is seen around 0.8720 area, another consistent break above that area would bring the price to neutral zone as direction would become unclear in nearest term perhaps retesting 0.8765 region.

         
XAU/USD. Rising Stochastic on daily chart could give short-term upward bias. But, gold still trade below MA 50-100-200 days with falling MACD that could signal the bearish pressures is still exist. Sentiment quite mixed where gold may trade sideways with trading range 1130 - 1180. Strategy: sell-on-rally with stop-loss 1175 and profit-taking 1146. Nevertheless, a clear break above 1174 could trigger upward movement to test area 1180.

          
Hang Seng Futures. Falling Stochastic on daily chart could give short-term downward bias. But, Hang Seng now trade inside bullish channel that may provide upward movement. Hang Seng may just move sideways for a while as it is still trapped between MA 100 and MA 200-days.  Strategy: sell-on-rally with stop-loss 23860 and profit-taking 23400. Nevertheless, a clear break above 23850 could trigger upward movement to test area 23935.

        
Nikkei Futures. The bias is bullish as Nikkei trade above MA 50-100-200 days with a raising MACD. But, Nikkei need to create daily close above resistance 17385 to give more power for rally. A failure to break resistance 17385 could trigger profit-taking as daily Stochastic in overbought area. Strategy: buy-on-dip with stop-loss 17100 and profit-taking 17385. Nevertheless, a clear break below 17110 could trigger downward movement to test area 17000.