China to diversify its foreign reserves as stock prices drop

U.S. Dollar Trading (USD) eased once again across the board before being relieved as sell off in global stock caused risk aversion to take its course. Many of the moves came during the Asian session as comments by a Chinese official stoked fears the central bank of the world’s fourth largest economy would reduce its holding of US assets, referring to the Euro as an alternative. So significant was the statement that it is perceived China is the second biggest holder of US treasuries, according to the US government. Dollar weakness was across the board pushing the greenback to all time lows against a basket of currencies. Concerns over the health of US economy, the possibility for lower lending rates and the sub-prime mortgage concerns add to negative sentiment over the US currency. Sharp sell of in stock prices did however relieve the dollar of further downside moves. In U.S. share prices, the NASDAQ was down -76.42 points (-2.70%) whilst the Dow Jones -360.92 points (-2.64%). Crude oil fell by US$2.00 retreating from an all time high of US$98.00 a barrel on profit taking. Oil closed at US$95.90. Looking ahead, Ben Bernanke is scheduled to speak informant of a joint, committee as markets await any indication of further rate cuts. 

The Euro (EUR) traded at a record high on Wednesday following the PBoC’s suggestion of diversifying its foreign reserves, Overall the EURUSD traded with a low of 1.4555 and a high of 1.4731 before closing the day at 1.4635 in the New York session. Thursday sees the ECB have a rate announcement although much of the market expects the central back to hold rates. 
 
The Japanese Yen (JPY) gained almost 1.4% against the USD on the back of a drop in global stock process. The JPY gained on the carry trade unwinding having traded at a low of 112.77 and a high of 114.79 before closing the day near lows at 112.80 in the New York session. 
 
The Sterling (GBP) hit fresh 26-year highs versus dollar, but remained under pressure against Euro on expectations that slowing growth will eventually prompt the Bank of England to cut rates. Overall the GBPUSD traded with low of 2.0863 and a high of 2.1070 before closing the day at 2.1013 in the New York session. The BoE is scheduled to hold its interest rate announcement on Thursday with markets expected rates to be kept on hold.
 
The Australian Dollar (AUD) was buoyed by the RBA increasing interest rates by 25 basis points to sit at 6.75%. The Rate announcement was followed by hawkish comments from the Central; bank indicating further rate hikes were on the table. Overall the AUD traded with a low of 0.9272 and a high of 0.9401before closing the session at 0.9291. Unemployment rate for the month October jumped to 4.3% from the previous 4.2% 
 
Gold (XAU) soared to fresh 27 year highs on Wednesday. XAU traded with a low of 823.10 and a high of 845.40. 

TECHNICAL COMMENTARY

Euro 1.4660
Initial support at 1.4467 (Nov 6 low) followed by 1.4404 (Nov 1 low). Initial resistance is now located at 1.4597 (This week’s open +(last week’s range *0.618) followed by 1.4656 (This week’s open + last week’s range)
                                        
Yen 112.80
Initial support is located at 114.03 (Nov 5 low) followed by 113.78 (Oct 25 low). Initial resistance is now at 114.96 (Nov 5 high) followed by 115.93 (Nov 1 high).
 
Pound – 2.1025
Initial support at 2.0755 (Nov 1 low) followed by 2.0671 (Oct 31 low). Initial resistance is now at 2.0906 (Nov 2 trend high) followed by 2.1000 (Psychological round number)
 
Australian Dollar – 0.9255
Initial support a 0.9202 (Nov 6 low) followed by 0.9158 (Nov 5 low). Initial resistance is now at 0.9344 (Oct 31 trend high) followed by 0.9446 (0.9143 plus 0.8747 – 0.9050).
                                                                                
Gold – 833.60
Initial support at 806.40 (Nov 6 low) followed by 801.20 (Nov 5 low). Initial resistance is now at 824.75 (Nov 6 trend high) followed by 825.00 (Round number resistance)