Daily Outlook 21st September 2010

Stocks Rally ahead of Key US Interest Rate Meeting

U.S. Dollar Trading (USD) positive stock momentum continued in the US session even as European Debt worries heated up overnight to allow a modest rally in risk trades. Oil and the Aussie was were the biggest beneficiary with the Euro and GBP struggling. In US stocks, DJIA +145 points closing at 10753, S&amp P +17 points closing at 1142 and NASDAQ +40 points closing at 2355. Looking ahead, FOMC Rate Decision Forecast to remain at 0.25% but with focus on the accompanying statement.

The Euro (EUR) the Euro struggled to maintain a rally into Europe with concerns about Irish and Portugal debt seeing an increase of their respective bond yields and prompting traders to take profits on long EUR/USD positions. Positive sentiment contained the pullback with EUR/JPY supporting on dips. EUR/USD traded with a low of 1.3029 and a high of 1.3123 before closing at 1.3060.

The Japanese Yen (JPY) the 40 pip range continued to hold with a pull back in Europe being caught at Y85.50 before stabilizing at opening levels. AUD/JPY saw a push higher as the carry trade of choice outperformed. Overall the USDJPY traded with a low of 85.49 and a high of 85.83 before closing the day around 85.60 in the New York session.

The Sterling (GBP) was weaker on the day as the fall in September Rightmove HPI by -1.1% combined with slowing bank mortgage approvals and shrinking money supply to prompt speculation that the BoE will expand QE program in coming months. Overall the GBP/USD traded with a low of 1.5535 and a high of 1.5688 before closing the day at 1.5555 in the New York session. Looking ahead, August Public Sector Net Borrowing is forecast at 12.3bn vs. 3.2bn previously.

The Australian Dollar (AUD) once again the strongest currency in the markets as the high yielding pair was given a further boost from hawkish comments from the Governor of the Reserve Bank of Australia. Governor Stevens commented that forecasted above trend growth would have to be managed with monetary policy suggesting future rate hikes as soon as the October meeting. Overall the AUD/USD traded with a low of 0.9360 and a high of 0.9496 before closing the US session at 0.9460. Looking ahead, RBA September Minutes Released.

Oil &amp Gold (XAU) consolidated at recent highs orbiting around the $1280 level. Overall trading with a low of USD$1274 and high of USD $1284 before ending the New York session at USD$1279 an ounce. Oil Rallied as the NBER officially called an end to the US recession. WTI Oil Closed +$1.20 at $74.86 a barrel. Notice new Contract month begins today.

TECHNICAL COMMENTARY

Euro – 1.3065

Initial support at 1.2919 (Sep 6 low) followed by 1.2588 (Aug 24 low). Initial resistance is now located at 1.3187 (Aug 11 low) followed by 1.3334 (Aug 6 High)

Yen – 85.75

Initial support is located at 83.99 (61.8% retrace of 82.88-85.78) followed by 82.88 (Sept 15 low). Initial resistance is now at 85.93 (Sep 16 high) followed by 86.70 (38.2% retrace of 92.89-81.88).

Pound – 1.5545

Initial support at 1.5297 (Sept 7 low) followed by 1.5125 (Jun 21 low). Initial resistance is now at 1.5731 (61.8% retrace of 1.5999-1.5297) followed by 1.5999 (Aug 6 high).

Australian Dollar – 0.9465

Initial support at 0.9351 (Sept 17 low) followed by the 0.9171 (Sep 9 low). Initial resistance is now at 0.9500 (Big Figure resistance) followed by 0.9637 (July 24, 2008 high).

Gold – 1278

Initial support at 1263 (Sept 15 low) followed by 1232 (Aug 31 low). Initial resistance is now at 1300 (Round Number) followed by 1324 (1263.20 plus 1.618 of 1236.80-1274.95).

Oil – 75.90

Initial support at 75.00 (Intraday Support) followed by 72.50 (Intraday Support). Initial resistance is now at 76.00 (Intraday Resistance) followed by 78.00 (Intraday Resistance).

Written by Anthony Darvall