Analysis

The holidays and yearend are in the horizon and yet the rest of December remains active with top-level meetings and key economic releases.

Several central bank rate decisions were reported and ECB, BOE, and BOC all maintained their interest rates, while Reserve Bank of Australia cut its rate down to three percent as expected.

Economic releases like UK Manufacturing PMI, US Final Manufacturing PMI, US ISM Noon-Manufacturing PMI, US Factory Orders, and employment data from Australia, US, and Canada all came in better than expected. On the other hand, US ISM Manufacturing PMI, Australia Building Approvals, UK Construction PMI, UK Trade Balance, Canada’s Ivey PMI, UK’s Manufacturing Production, Germany’s Industrial Production, and Preliminary University of Michigan Consumer Sentiment slumped, coming in much worse than forecasts.

And how did the markets react to these events?

Commodities

Gold continues to be supported by demand around $1,682, with buyers showing up in this area during the last three days of this week. Bulls are still under pressure on the downside and needs to reclaim their foothold of the mid-$1,730s next week. $1,750 is the next near-term resistance towards the $1,795 highs posted in late-September.

Oil performed worse than gold and continued its sour range trading this week, falling $4 after printing a fake high at $90.30 on Monday. Supply maintained its guard of the $90.00 level well and sellers are poised to put more pressure. It is mandatory for bulls to prevent a breach of the $85/86 area this coming week.

Currencies

EURUSD started the week on a strong note with a 140-pip climb from 1.2982. Midway on Wednesday, the bulls lost momentum as price moved above 1.3100 and towards 1.3125, giving the bears the chance to sway the price in their favor. The 1.3000s became a battleground but in the end, bears won and pushed price back below this key level and more than 100 pips lower toward 1.2875, erasing all of the gains for this week. Essentially, the pair is back into consolidation and all of the bullish effort would be put into waste if the key 1.3000 level is not regained quickly and 1.2900 cedes.

USDJPY continues to be confined in a 100-pip range, but Dollar strength and Yen’s weakness continues to favor this pair. Buyers reached for the November 82.82 high on Friday, but pulled back to close the week better at 82.47. This topside resistance at 82.80/83.00 needs to break to open up the upside.

GBPUSD finished slightly better than EURUSD, closing the week marginally to the upside and protecting its own important 1.6000 level. Having said that, the pair is far from being safe as the 1.6000 level has received continuous bear attacks thanks to recent Dollar strength. This key level is vulnerable to breakage any time soon, unless renewed demand can shift the attention back to the 1.6100 area.

AUDUSD continues to play the consolidation game, printing a mere 122-pip range this week. 1.0500 continues to pose as a stubborn resistance for bulls, but bears seem to be slowly giving up the fight. Bulls should maintain the pressure to the upside; otherwise the downside would yield in bears’ favor.

The Week Ahead

The coming week is generally lighter than the previous weeks, but the swath of central bank rate decisions continues, as well as important economic releases and top-level meetings and speeches.

Monday starts off with the releases of Japan’s BSI (Business Survey Index) Manufacturing Index, Current Account, Final GDP, and Consumer Confidence; China’s Trade Balance; Germany’s Trade Balance, France and Italy’s Industrial Production; Canada’s Housing Starts; and BOE Governor King’s speech.

On Tuesday, Germany’s ZEW Economic Sentiment, UK’s 10-year bond auction, Canada and US Trade Balance.

Wednesday is the key day for this week. It will have the releases of Australia’s Westpac Consumer Sentiment, RBA Governor Stevens’ speech, UK’s Claimant Count Change and Unemployment Rate, UK MPC member Dale’s speech. OPEC meetings will also be held, as well as the much-awaited releases from the US including the FOMC rate decision, FOMC Statement and press conference, Federal Budget Balance and Economic Projection.

Thursday, Switzerland’s LIBOR Rate, SNB Monetary Policy Assessment and press conference, ECB Monthly Bulletin, Eurogroup meetings, (two-day) EU Economic Summit, US Retail Sales, US PPI, US Unemployment Claims.

For Friday, Japan’s tankan Manufacturing Index, China’s HSBC Flash Manufacturing PMI, Germany’s Flash Manufacturing PMI, US CPI and Industrial Production.

The markets cheered the economic developments this week, brought about by high-level discussions and favorable economic data releases.

Most notably, Germany, US, and China all released better than expected data figures in the form of Germany’s Flash Manufacturing PMI, Ifo Business Climate; US Existing Home Sales, Housing Starts; and China’s HSBC Flash Manufacturng PMI.  China’s data release was a welcome surprise as many analysts were concerned that the China economy was slowing down. The Eurogroup meetings and US budget discussions between President Obama and Congressional leaders also yielded optimism, although the authorities pointed out that further discussion are necessary.

In other news, Israel and Hamas agreed to a truce, following negotiations in cooperation with Egpytian leaders and US Secretary of State Hillary Clinton. The ceasefire ended eight days of attacks and air strikes. Meanwhile, clashes that sparked in Egypt continued for a second day on Friday after President Mohamed Mursi issued a decree that grants him extended political powers, which critics feared would put him a step closer to enforcing a dictatorship over the nation. The decree was issued a day after he helped broker a ceasefire between Hamas and Israel.

Stocks, Bonds, and Commodities

Saudi Arabian shares finally gained for the very first time in 11 days, escaping from its longest losing streak in 20 months. After falling by 4.8 percent in the last 10 days to a four-month low, Saudi’s Tadawul Index closed 0.8 percent higher to 6,665.49 on Friday. Saudi shares benefitted from the Israel-Hamas ceasefire.

European indices have been impressive, all climbing up each day of this week. US and emerging market stocks also made gains. US markets soared to its best rally since June, with S&P 500 rising 3.9% this week.

In the bond market, UK gilts fell for the very first time in five weeks after the Bank of England signaled that it is unlikely to slash rates anytime soon. German bunds also fell to its first in five weeks on optimism about Greece and that leaders are taking action to curb the ongoing crisis.

In the commodities front, Black Friday turned out to be a really Good Friday as far as gold traders were concerned, as gold finally made its way beyond the $1,740 near-term resistance. Gold made a convincing rally and closed at $1,750, beyond the resistance area which held price since late-October. Buyers cannot stay complacent as bears could be lurking around $1,770.

Oil has been making fairly consistent higher lows since November 9 and has successfully closed above 88.00 this week. The next area of contention would be the 90.00 level, an area nearly reached last Monday.

Currencies

EURUSD is on pace to erase of all of this month’s losses after it rallied close to the 1.3000 level on Friday. The 1.2800 support provided a base for prices to gain further, paving the way for a 1.3100/1.3300 range assault this coming December.

A second week of impressive gains ensued for USDJPY after capturing the 80.00 level and subsequently breaking above 81.00. A solid floor at 82.00 would catapult price to its next target around 84.00.

Not wanting to be outdone by other majors, GBPUSD unleashed a 120-pip rally during late-Friday’s trading. The pair has been making consistent higher highs since printing the 1.5825 November 15 low and is on its way to a renewed assault to the 1.6100-highs as long as 1.6000 holds through next week.

Meanwhile, AUDUSD continues to be a laggard, having been embroiled in a tight 90-pip range all week before joining the pack’s move higher on Friday. EURUAUD is still exerting a negative influence on this pair.

The Week Ahead

The coming week is another interesting one filled with high-level meetings and speeches, giving investors a lot to watch out for. Monday will start off with the resumption of the Eurogroup meetings; On Tuesday, UK Revised GDP, US Durable Goods Orders, US Conference Board Consume Confidence, and speeches from Fed’s Lockhart and Bernanke; Wednesday releases include Germany Preliminary CPI, US New Home Sales and Crude Oil inventories, and SNB Chairman Jordan’s speech; On Thursday, New Zealand’s NBNZ Business Confidence, Australia’s Private Capital Expenditure, Italian 10-year bond auction, UK BOE Governor King’s speech, and US Preliminary GDP, Unemployment Claims, and Pending Home Sales; and Friday ends with the releases of Japan’s Unemployment Rate and Preliminary Industrial Production data, Germany’s Retail Sales, France’s Consumer Spending, Italy’s Unemployment Rate, and Canada’s GDP.

China recently concluded its one-in-a-decade Communist Party meeting and heralded Xi Jinping on November 15 as the new General Secretary. Xi is widely expected and in line to become the next Chinese President. The top Chinese decision-making body, Politburo, also revealed the new Standing Committee members, with Vice Premier Li Keqiang expected to become Premier Wen Jiabao’s successor.

Meanwhile, after many months of promises of calling for an election, Japan’s Prime Minister Yoshihiko dissolved the parliament’s lower house and called for a change in leadership. A snap election on December 16 will be held and is expected to reveal a massive loss for Noda’s party, based on recent polls.

In the Middle East, Israel launched an attack in Gaza which reportedly killed the Hamas group’s military commander Ahmed Al-Jaabari, prompting Hamas to retaliate and deepen the conflict. Palestinian militants in Gaza purportedly hurled a long-range missile attacks to Tel Aviv. Egyptian Prime Minister Hisham Qandil visited Gaza and called for an international intervention and a peaceful resolution of the conflict.

Stocks and Commodities

Dow, S&P 500, and Nasdaq were all up on Friday on better prospects for an amicable settlement between President Obama and top Republicans and Democrats in dealing with the ‘US fiscal cliff’ scenario. In contrast, European indices all closed in negative territory amid several concerns in and out of the region. The snap election in Japan spurred a three percent rally in the Nikkei 225 Index. Meanwhile, Saudi and Israeli shares fell amid the Israel-Hamas conflict in Gaza. Saudi Arabia’s Tadawul Index fell to its lowest in nearly a month.

In the commodities front, Soybeans fell as China, cancelled 600,000 metric tons of purchase, a substantial purchase quantity from the biggest consumer of soybeans. Corn and wheat also slipped, with wheat posting its biggest decline since late 2011. Notably, the United States was the largest shipper of these three commodities in 2011. The US Energy Department said US crude stockpiles gained by 1.09 million barrels, while oil output rose for a 10th week, its largest since May 1994.

Oil is in danger of making an upside comeback if the Israel-Gaza conflict continues to escalate. Investors are concerned that the tension could disrupt Middle Eastern oil supplies. Meanwhile, gold remained quiet after posting a $60 upside move last week. Gold encroached itself in a tight $30 range all throughout this week while the $1,700 level retained support from buyers. A move beyond $1,800 and $1,700 is needed to attract fresh buyers and sellers.

Currencies

EURUSD stopped 30 pips short from erasing this week’s gains, closing at 1.2740. Buyers need to immediately regain their place between 1.2800 and 1.2900 to gain traction for another attempt at the 1.3000s. Otherwise, we could see the mid-1.2000’s before November ends.

Unlike EURUSD, GBPUSD succumbed to Dollar pressure and failed to end the week with a foothold above the weekly open. Even the gains for the last two days were not enough to put this pair in positive territory for the week. 1.6000 remains an important level for traders and we expect another tug-of-war when that area is revisited. In the near term, price needs to recapture 1.6100/1.6200 to erase the downside momentum which emanated from late-September.

Dollar bulls were unable to force USDJPY below the 79.00 level for the entire month of November. The result was an impressive 225-pip upmove printed this week, its largest weekly range in about a year. The 84.00 – 86.00 area is the next target and bulls can achieve this even before the month ends.

AUDUSD was evidently weak since the week opened, failing to take minor upside resistance at 1.0450 for the first two days. This attractive bearish momentum to take over, plunging the pair with three consecutive downdays until Friday. A solid breach of 1.0600 would end the current consolidation.

The Week Ahead

The coming week will be relatively busy, as each day is dotted with several key economic releases. On Monday, the market will look at New Zealand PPI, German Bundesbank President Jens Weidmann’s speech, and US Existing Home Sales; On Tuesday, Australia’s Monetary Policy Meeting Minutes, Reserve Bank of Australia’s Stevens’ speech, China’s Foreign Direct Investment, Japan’s Interest Rate announcement and Monetary Policy Statement, Bank of Japan press conference,  Eurogroup meetings, US Building Permits, and US Fed Chairman Bernanke’s speech; Japan’s Trade Balance, UK’s Public Sector Net Borrowing and MPC Minutes, and US Unemployment Claims on Wednesday; China’s HSBC Flash Manufacturing PMI, France’s and Germany’s Manufacturing PMI, Canada’s Retail Sales, and Day 1 of the 2-day EU Economic Summit on Thursday; Germany’s Ifo Business Climate, and Day 2 of the 2-day EU Economic Summit, and Canada CPI data on Friday.

US and Japan will celebrate Thanksgiving Day on November 22 and 23, respectively.

The US has been the focus of events this week with both Obama’s reelection and Hurricane Sandy’s long term impact on the US Northeast.

President Barack Obama has been re-elected for his second term when Americans took to the voting precincts last November 6 to vote on the US Presidential, Senate, and House of Representatives elections. Obama defeated his Republican contender Mitt Romney.

The electoral tally showed Obama won 303 electoral votes, while challenger Mitt Romney earned 206 electoral votes. Meanwhile, Democrats retained control of the Senate, while the republicans hold control of House of Representatives. Obama will be inaugurated for his second term as President on January 21 next year.

In other news, the American Northeast is still suffering after Hurricane Sandy wreaked havoc the other week. Sandy caused flooding and devastated homes, businesses, and buildings, and left the majority without power, water, and phone service. Recent reports show as much as 100,000 businesses and homes will possibly endure a few months with no power until major restorations are facilitated. According to the US Energy Department, more than 400,000 homes and businesses, mostly in New Jersey and New York, still have no power. A nor’easter wind, rain, and snow storm followed recently which aggravated the situation and prevented utility crews from making repairs and power and utility restoration.

Markets Reaction to the Events

The week passed by without any unusual fuss as Obama’s re-election meant status quo for the markets. However, the key economic data released this week created significant volatility for the markets.

German bonds climbed for a third week on concerns that European slowdown is worsening and spreading to other European economies. UK gilts also rose for the third week on speculation that the Bank of England will increase bond purchases to continue spurring economic growth.

Asian, Europe, and US stocks fell as investors turn to concerns about an impending US ‘fiscal cliff’ as the yearend nears. Bush-imposed tax cuts will expire by December 31 and the “fiscal cliff” scenario heralds tax hikes and spending cuts, affecting Americans in the process.

The volatility led mainly by the US elections also affected oil, with price having spiked up and down by $5 total on election day and the next. Oil closed the week nearly $2 higher from the weekly open at $86.06. Meanwhile, the quick $42 drop last week did not prevent gold from making a comeback and ending the week in spectacular fashion. Gold traded higher for four consecutive days and closed the week at $1,730.

Currencies

It was a week rich in volatility for the currency market, thanks to a raft of key economic data releases and the recently-concluded US elections.

After touching 80.67 the other week, USDJPY made a relentless move to the downside this week, taking out stops and stopping six pips short from breaking the 79.00 level. This pair is in a precarious situation and 79.00 should hold to prevent a collapse towards the 77.00 area.

Meanwhile, GBPUSD and EURUSD are also in dangerous territories as Dollar strength zapped the bulls to end the week. GBPUSD spent most of the week within a 50-pip range from 1.5950 and 1.6000. Attempts to breach each side were easily rebuffed, and the week closed by finally breaking this range to the downside, closing at 1.5893.

EURUSD is also in a terrible position after closing three consecutive days below the 200-day average. The pair made a brief foray to the upper-1.2600’s but closed the week at 1.2709.

Bucking the trend, AUDUSD held up relatively well this week. Compared to EURUSD and GBPUSD, this pair ended the week at a better price, and is still poised to move higher if 1.0300 does not give way to dollar strength.

The Week Ahead

The coming week is relatively average in terms of economic news, with most of the key economic data releases concentrated on Wednesday and Thursday. The market will be looking forward to the Eurogroup meetings on Monday; UK CPI and BOE Inflation Letter, and Germany’s ZEW Economic Sentiment on Tuesday; New Zealand’s Core Retail Sales, UK’s Claimant Count Change, BOE Inflation Report, and BOE Governor King’s speech; and US Retail Sales, PPI, FOMC Meeting Minutes on Wednesday; UK Retail Sales, US CPI, Unemployment Claims, Philly Fed Manufacturing Index, and Bernanke’s speech; and finally, US TIC Long-Term Purchase and Industrial Production on Friday.

An extraordinary week greeted the market as Hurricane Sandy wreaked havoc on the American Northeast this week, leaving 8.5 million people with devastated homes, infrastructures, and businesses, and majority with no power, heat, water, and phone service.

Financial markets were not affected, thanks to measures imposed as early as the prior week. This week ended on a better footing as the market welcomed a better-than-expected US employment data on Friday. According to authorities, the US labor market added 171,000 jobs, almost 50,000 more than analysts’ consensus estimates. Unemployment rate stayed at 7.9 percent, compared to Canada’s 7.4 percent unemployment rate which was reported at the same time.

Stocks, Bonds, and Commodities

The US made history this week as Hurricane Sandy battered the US East Coast, particularly New York City, forcing the most prolonged shutdown of US stock trading in 124 years. New York City, the world’s biggest financial market and home to nearly 170,000 workers employed in the securities industry, halted trading for 48 hours on October 29 and 30 when the Hurricane hit. Floods and power outages ripped through New York, New Jersey, and nearby areas, but no unfavorable incident transpired in the financial market. Bond trading was also halted during that time.

According to Bloomberg data, quarterly results released by 71 companies beat analysts’ estimates, giving S&P 500 a 0.2 percent gain this three-day trading week. Meanwhile, Dow and Nasdaq fell slightly over one percent on Friday. Most of Europe and Asia were favorably buoyed this week. Japan’s Nikkei reached a one-week high on US recovery hopes.

Gold fell two percent to its two-month low of after the release of the better-than-forecast US Non-Farm Payrolls data. Oil dropped to its lowest in nearly four months on concerns that Hurricane Sandy-led shutdowns of oil refineries in the US East Coast aided in increasing the supplies.

Currencies

It was another tepid trading week for currencies, mimicking the moves in the stock market.

EURUSD maintained its consolidating tone with a bearish bias. 1.2800 is an important area for the bulls to maintain; else market can expect a move towards 1.2400 to 1.2700 next week. Meanwhile, GBPUSD needs to sustain its hold of the 1.5900 to 1.6000 area if buyers are planning another visit to the 1.6300 highs reached in late September.

For AUDUSD, trading was also lackluster, ending the week with just a 90-pip trading range. The slow and weak upmove created by AUDUSD in the first four days of the week was quickly erased on Friday, ending the week at 1.0334, 30 pips lower than the weekly open.

The Week Ahead

Now that the US non-farm payroll week is behind us, the market will be eagerly looking forward to the US Presidential and Congressional Elections this coming week. Aside from these, the market will set its sights on the first day of two-day G20 meetings, Australia’s Retail Sales and Trade Balance, Spain’s Unemployment, UK’s Services PMI, Canada’s Building Permits, and the US ISM Non-Manufacturing MPI data on Monday; On Tuesday, Australia’s rate announcement and statement, UK’s Manufacturing Production, and Canada’s Ivey PMI

data; On Wednesday, New Zealand central bank’s Financial Stability Report, Switzerland’s

Currency Reserves and CPI; On Thursday, New Zealand and Australia’s Employment data,

Eurogroup meetings, UK and Europe’s rate announcement, UK’s Policy Rate Statement, and ECB’s press conference, US and Canada’s trade balance, and US Unemployment Claims; and lastly on Friday, Australia’s RBA Monetary Policy Statement, China’s CPI and PPI, and US preliminary University of Michigan’s Consumer Sentiment data.

Daylight Saving Time or DST will take effect in Canada and the US starting this week.

Amid all the cornucopia of high-level talks this week, including the Eurogroup, ECOFIN, G7, and IMF meetings, not much of what has been said surprised the markets.

Authorities exchanged rhetoric about the ailing global economy and how it can be addressed. Notable highlights were the discussions in the three-day IMF meeting where officials from around the world gathered to discuss the prevailing Eurozone issues. Current tensions surrounding an island dispute between China and Japan led a top Chinese delegate to pull out of the IMF meeting. IMF cut its world GDP forecast, citing further risks ahead including risks to the safe-haven status of Japan and the US, the world’s two biggest economies.

Early Thursday, Standard & Poor’s slashed Spain’s debt rating to BBB-minus, one notch above non-investment grade, increasing concerns that the ailing nation will proceed with a bailout request. A Spanish official told reporters that Spain will decide on bailout at an “appropriate time.”

Stocks, Bonds, and Commodities

The Asian stock market was relatively mixed, with top gainers on Friday being indices of Hong Kong, Philippines, Indonesia, and Singapore. Unlike Asia, Europe and the US stock markets were generally weak, with only the Dow being able to eke out a slight gain among the three main US indices.

As stocks slump, US treasuries and 10-year UK Gilts rose on lingering signs of economic slowdown on both sides of the Atlantic. US Treasuries ended the week with a four-day gain as the Federal Reserve purchased $1.889 billion worth of 30-year bonds, in keeping with its plan to keep borrowing rates low. For a second week, Spain’s 10-year bonds gained after the S&P debt rating cut.

In the commodities front, oil fell as the International Energy Agency cut its forecast for worldwide oil demand on continued concerns about slowing economic growth. IEA said that Iranian oil exports would likely remain depressed in the next few years.

Copper posted its biggest weekly decline in three months. Concerns about weakening demand linger as purchases of scrap copper has been slowing and China economic concerns continue to mount. Meanwhile, corn and soybeans experienced declines as demand for supplies weaken. United States is the largest exporter and grower of corn and soybeans.

Currencies

EURUSD moved within a 200-pip range throughout the week. The weekly open and the 1.3000 figure were never reached since the pair plunged from the start of Monday trading. The weakness in EURUSD and its inability to rise above 1.3000 could signify that further range trading is ahead, perhaps for the entire October.

Compared to EURUSD, GBPUSD performed a steady drop of nearly 170 pips since Monday. It was also unable to breach the nearest round number figure (1.6100). Meanwhile, AUDUSD bucked the trend and made a gradual 140-pip rise throughout the week. Since the attempt of breaking the 1.0300 figure ended in failure, it fell 70 pips and closed mid-range at 1.0230. Commodity price gains helped in AUDUSD’s rise.

In a recent speech, SNB Chairman Jordan told reporters that the “financial market sentiment has improved and reduced pressure on the Franc.” Having said this, he still views the Swiss currency as being “overvalued” and reaffirmed that the SNB “will continue to defend this minimum exchange rate with the utmost determination.” USDCHF closed the week at 0.9334.

The Week Ahead

October is rolling out another busy week ahead. Early Monday, China will release its CPI and PPI data. During the North American session, the market will look at US Retail Sales and Canada’s BOC Business Outlook Survey. For the rest of the week, New Zealand’s CPI, Australia’s Monetary Policy Meeting Minutes, UK’s CPI, PPI, BOE Inflation Letter, Germany’s ZEW Economic Sentiment, and US CPI data are out on Tuesday; UK Claimant Count Change and MPC Meeting Minutes and the highly-anticipated China GDP data on Wednesday; Thursday sees day 1 of a two-day EU Economic Summit, UK Retail Sales, Spanish 10-year bond auction, US Unemployment Claims and Philly Fed manufacturing Index; and finally, Friday data releases include UK Public Sector Net Borrowing, Canada CPI, and US Existing Home Sales.