Good morning. Well, glad I wasn’t trading forex yesterday! As I am sure you are all aware the Swiss caused chaos and calamities from New Zealand to New York with their announcement yesterday that they were removing the cap on the Swiss Franc. Reverberations were felt around the world at the time, and are still ongoing, with the FTSE dropping over 150 points in minutes to a low at around 6290. A lot of people got caught out with that, including hedge funds, spread bet firms and all sorts. We nearly hit the 6510 resistance though at the bell after quite a recovery from the lows (volatility’s still here then!), and have dropped back overnight. Thats still the line in the sand though might be a good move to just come back Monday. First support is 6432.
Asia Overnight from Bloomberg
Asian shares dropped with U.S. index futures as the market turmoil sparked by Switzerland abandoning the franc’s cap extended into a second day. Sovereign bonds rallied and gold traded near a four-month high.
The MSCI Asia Pacific Index fell 0.6 percent by 2:06 p.m. in Tokyo, while Standard & Poor’s 500 Index futures slid 0.5 percent following a five-day drop. The franc was near parity with the euro after trading at 1.20096 per euro immediately before the Swiss National Bank announcement. Yields (GACGB10) on 10-year Australian and Japanese debt declined to records. Copper is heading for its biggest weekly loss in three years, while oil is set for the longest weekly losing streak since 1986.
The SNB move sparked mayhem on trading floors and increased speculation that the European Central Bank may unveil a broader program of stimulus when it meets next week. FXCM Inc., the third-largest currency broker for retail clients, said it may have breached some capital requirementsafter clients got caught out by the franc surge, while a New Zealand currency brokerage said it would close due to losses. The euro area reports final December consumer prices figures today.
“The SNB caught almost everyone by surprise and it’s creating unease and anxiety in markets,” Nader Naeimi, who helps manage about $125 billion as Sydney-based head of dynamic asset allocation at AMP Capital Investors, said by phone. “The strategy is capital preservation for now, buying gold to hedge against the volatility which is going to continue.”
Stocks Sink
Gold was little changed at $1,259.35 an ounce on the spot market today. It jumped 2.8 percent last session in its steepest one-day climb since Dec. 1.
Australia’s 10-year notes paid 2.55 percent after the yield dropped to a record 2.49 percent, below the central bank’s official cash rate for the first time since 2012. The yield on Japanese government bonds due in a decade fell to as low as 0.225 percent, also the lowest ever.
U.S. 10-year Treasuries were little changed, with the yield at 1.72 percent. The rate fell for a fifth straight day yesterday and touched 1.70 percent, the lowest since May 2013.
Japan’s Topix index fell 1.5 percent, putting it on track for a 2.6 percent drop in the week. The Kospi index in Seoul retreated 1.4 percent. Hong Kong’s Hang Seng Index slid 1 percent and the Hang Seng China Enterprises Index was 1.2 percent lower. The Swiss Market Index (SMI) slumped 8.7 percent Thursday, its biggest one-day drop since 1989.
Casualties Mount
The SNB also deepened negative deposit rates, underscoring Europe’s divergence with the U.S., where the Federal Reserve is mulling rate rises.
The franc’s surge versus the euro ranked as one of the biggest moves among major currencies since the collapse of the Bretton Woods system in 1971. The Swiss currency reached 85.172 centimes per euro last session, its strongest level since the euro’s 1999 debut and climbed against all of its major and emerging-market counterparts. It fell 3.7 percent to $1.1476 today.
FXCM, a New York-based company that offers foreign exchange trading services over the Internet, said in a statement clients suffered significant losses that “generated negative equity balances owed to FXCM of approximately $225 million.”
Auckland-based Global Brokers NZ Ltd. said in a statement on its website that the majority of clients were on the “losing side” of the franc position, suffering greater losses than their account equity. Volatility on the franc soared to a more than one-year high last session.
The euro was little changed at $1.1632 after falling 1.3 percent yesterday. The 19-nation currency is headed for a fifth weekly drop, down 1.8 percent versus the greenback. The euro bought 1.01275 Swiss francs and 135.37 yen.
Yen, Won
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, was set for its first weekly decline since the five days ended December 12. The yen was 0.2 percent weaker at 116.45 a dollar, gaining 1.8 percent this week for the best performance among 11 Asian currencies tracked by Bloomberg. The South Korean won jumped 0.5 percent versus the dollar today.
West Texas Intermediate crude fluctuated on its way toward an eighth weekly retreat as a global supply glut shows no sign of abating. The February contract was trading at $46.71 a barrel. Brent crude added 1 percent to $48.75 a barrel in London.
Demand for oil from the Organization of Petroleum Exporting Countries will average 28.8 million barrels a day, about 100,000 barrels less than estimated last month, the Vienna-based group said in a monthly report on Thursday.
Copper for three-month delivery on the London Metal Exchange rose 0.5 percent to $5,658 a tonne. The metal has lost about 7 percent this week, the biggest such retreat since September 2011.
Futures on the Nasdaq 100 Index retreated 0.8 percent. Intel Corp., the chipmaker with the third-highest weighting on the stock gauge, projected sales that may fall short of analysts’ estimates. [Ref]
FTSE Outlook
Initial support is at the daily pivot at 6432, though there are wider levels to note, 6402 is the bottom of the 30 min channel we are in, with 6510 as the top. I wouldn’t be surprised if we see both of those today given how we have been recently. I have gone for an initial rise to the 200ema on the 30min around the 6465 area before dropping back – mainly as the 30min EMAs as I write are still bearish, though the gap between the 10 and 25 has narrowed (so could easily get bullish). I have plotted a dip down to the 6402 level before a rise, but will look to try a small long at 6432off the daily pivot first with a tight stop and see how that goes. If the stop gets hit then chances are it will drop to the 6402 area. Below that the next support is 6366, then the bottom for he Bianca 10 day at 6344 and the 20 day at 6315. Bottom of the 10 day Raff is 6299. That spike down yesterday was quite something, as was the recovery – I don’t think, barring any unexpected news again, we will see something like that today! On the upside, resistance after 6465 is 6507 (high at the bell yesterday) with 6535 above that, then 6560 and the top of the 10 day Bianca at 6625. Madonna think we will get that high though as the daily EMAs are still bearish, and the coral is 6542 then the 20 day Raff at 6595 so a few big hurdles to jump first.