Trading ranges seen in equity markets have moved higher with the S&P 500 finding resistance at the 1250 level before reversing. The main driver in price activity came with the third quarter GDP figures out of New Zealand overnight, which came in mixed but stronger than expectations at +0.8% on a quarterly basis and the numbers were encouraging because of the improvement on the 0.1% seen in the previous quarter. On a yearly basis, however, the numbers were less impressive at +1.9% (which was below the consensus estimate) and the previous data was revised lower to 1.1% (1.5% previously). The stronger performance was helped by this year’s Rugby World Cup and the report helped keep the New Zealand Dollar supported overnight.
Additional positives came when the European Central Bank offered a larger portion of its three year Long Term Bank Refinancing fund (with total loans equaling 489 billion Euros, split between 523 different European banks) and this did send the Euro to test resistance levels near 1.32 but the rally was halted by a rally in bond yields in both Italy and Spain and the S&P downgrade of long term credit in Hungary. This is being compounded by the continual prospects of similar downgrades in the French rating, so, on the whole the Euro is having some difficulty making a sustainable bounce off of 1.30.
In Canada, retail sales data was released, coming in above market estimates at 1.0% (0.5% was the consensus estimate) and the US existing home sales showed a rise of 4.0% against expectations of 2.2% (but with downward revisions to previous figures). The data helped support both the Dow Jones Industrial Average and the S&P 500, which are both trying to hold onto marginal gains for the year. The Nasdaq, however, closed the session lower as the recent Oracle story continues to weigh on the tech-heavy index.
For today’s trading, we are expecting the volatility to continue slowing as equity markets in Japan will be closed tomorrow and ranges will likely tighten into the close of the week. We could see some price reactions to some of the regional economic data, with Swedish Producer Prices, the Norwegian unemployment rate and third quarter GDP out of the UK all scheduled for release. The macro schedule will continue in the New York session, with the Chicago Fed survey, University of Michigan Consumer Confidence and the third quarter GDP report to be released.
As volatility slows into the end of the year, we are looking to move into carry trade positions. One of the best buys looks like EUR/JPY, which has taken a beating in recent weeks and is now approaching key long term support at 100.80. This pair has shown much larger declines than the other major carry trade pairs (such as AUD/JPY), so we are starting to build long positions at these cheaper prices.
We will use the slowing volatility in equities as an opportunity to look at Oil, which has seen major gains in the previous sessions. The latest decline found support at the confluence of moving averages and the 38.2% Fibonacci retracement of the move from below 75. This area is now the key level to watch on the downside, as a break here would reverse the bullish bias. Topside, the next important resistance is seen at 97.50, which is currently being pressured. A break here targets the previous highs above 102.