Forexpros Weekly Wrap-Up 12 October 2012

Closing the Week with Forexpros

by Forexpros Staff

The dollar weakened against most major currencies on Friday in a risk-on trading session stemming from hopes that Spain is moving closer to requesting a bailout.

Consumer sentiment figures out of the U.S. came in stronger than expected, which prompted investors to ditch the safe-haven greenback and take on risk.

In U.S. trading on Friday, EUR/USD was up 0.25% at 1.2960.

Market talk suggesting that Spain may be closer to requesting a bailout sparked a global risk-on trading session that saw investors chasing higher-yielding currencies.  Earlier this week, Standard & Poor’s said it lowered Spain’s long-term credit rating to ‘BBB-‘ from ‘BBB+’ and cut its short-term credit rating to ‘A-3’ from ‘A-2’.

The ratings agency said Spain’s deepening economic recession is limiting the Spanish government’s policy options and added that rising unemployment and spending constraints are likely to fuel social discontent and contribute to friction between Spain’s central and regional governments.  From the Standard & Poor’s statement:

“In our view, the capacity of Spain’s political institutions (both domestic and multilateral) to deal with the severe challenges posed by the current economic and financial crisis is declining.”

A bailout would allow the European Central Bank to step in and buy Spanish sovereign debt in the secondary market, which would lower borrowing costs in the crisis-weary country.

Elsewhere, industrial production in the eurozone rose unexpectedly in August, rising 0.6% after an increase of 0.6% the previous month.  Analysts had expected industrial production to contract by 0.4% in August.

Meanwhile in the U.S., the University of Michigan/Reuters consumer sentiment index for October rose unexpectedly.  In a report, the University of Michigan said that consumer sentiment rose to a seasonally adjusted 83.1 from 78.3 in September.  Analysts had expected consumer sentiment to fall to 78.0.

Also in the U.S., producer price inflation rose more than expected in September, official data showed on Friday.  In a report, the Department of Labor said that it producer price index rose a seasonally adjusted 2.1% from 2.0% in August.  Analysts had expected the figure to rise 0.7% last month.

The greenback, meanwhile, was down against the pound, with GBP/USD trading up 0.20% at 1.6078.

The dollar was up against the yen, with USD/JPY trading up 0.09% at 78.41 and down against the Swiss franc, with USD/CHF trading down 0.25% at 0.9331.

The dollar was mixed against its cousins in Canada, Australia and New Zealand, with USD/CAD trading up 0.10% at 0.9796, AUD/USD down 0.32% at 1.0231 and NZD/USD trading up 0.03% at 0.8176.

The news about Spain was good news for the euro.  In U.S. trading on Friday, EUR/USD was trading up 0.19% at 1.2953, up from a session low of 1.2921, and off from a high of 1.2992.

The pair was likely to find near-term support at 1.2921, the earlier low, and resistance at 1.2992, the earlier high.The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.17% at 79.74.

Natural Gas and Oil

Natural gas futures sold off Friday, after rallying to the highest level since December 2011 earlier, after a report from the U.S. Energy Information Administration showed U.S. gas supplies rose less-than-expected last week.

On the New York Mercantile Exchange, natural gas futures for delivery in November traded at USD3.578 per million British thermal units during U.S. morning trade slipping 0.76%.   Profit takers hit natural gas after the U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. in the week ended October 5 rose by 72 billion cubic feet, below market expectations for an increase of 77 billion cubic feet.

Inventories rose by 108 billion cubic feet in the same week a year earlier, while the five-year average change for the week is an increase of 84 billion cubic feet, according to U.S. Energy Department data.  Total U.S. natural gas storage stood at 3.725 trillion cubic feet as of last week. Stocks were 236 billion cubic feet higher than last year at this time and 269 billion cubic feet above the five-year average of 3.456 trillion cubic feet for this time of year.

U.S. natural gas stocks peaked at a record 3.852 trillion cubic feet in November of last year.

The report showed that in the East Region, stocks were 67 billion cubic feet above the five-year average, following a net injection of 42 billion cubic feet.   Stocks in the Producing Region were 160 billion cubic feet above the five-year average of 1.047 billion cubic feet, after a net injection of 27 billion cubic feet.

Meanwhile, market players continued to monitor updated weather forecasts to gauge the strength of early-Autumn heating demand.  These forecasts released Wednesday showed that weather models for the next 11-to-15 days were cooler than initially expected, boosting early-Autumn heating demand for natural gas.

Weather forecasters had previously called for warmer-than-normal temperatures during the period.

Natural gas futures often reach a seasonal low in October, when mild weather reduces demand, before recovering in the winter, when heating-fuel use peaks.

Elsewhere on the NYMEX, light sweet crude oil futures for delivery in November fell 0.34% to 91.76.

Gold

On the Comex division of the New York Mercantile Exchange, Gold futures for December delivery traded at USD1765.35 a troy ounce in U.S. trade falling 0.30%.

It earlier traded at a session high USD1772.45 a troy ounce. Gold was likely to find support at USD1758.85 and resistance at USD1781.55.   Gold fell on profit taking despite the U.S. University of Michigan consumer sentiment rising unexpectedly last month, preliminary data showed on Friday.

Other factors, which would ordinarily support the price of gold rose:   U.S. producer price inflation rose more-than-expected last month, official data showed on Friday and the U.S Bureau of Labor Statistics – Department of Labor said that U.S. PPI rose to a seasonally adjusted 2.1%, from 2.0% in the preceding month.  Analysts had expected U.S. PPI to rise 0.7% last month.

Elsewhere on the Comex, Silver for December delivery fell 0.83% to trade at USD33.79 a troy ounce while Copper for December delivery gave back 1.01% to trade at USD3.713 a pound.

Stocks

In spite of the stronger U.S. consumer sentiment from the University of Michigan/Reuters poll and optimism from Europe, U.S. stocks ended mixed to lower on Friday, as investors shrugged off solid JPMorgan Chase earnings, selling on fears that overall earnings will disappoint as headwinds build in front of the global economy.

At the close of U.S. trading, the Dow Jones Industrial Average rose 0.02%, the S&P 500 index was down 0.30%, while the Nasdaq Composite index was down 0.17%.

Solid earnings broke as well.  JPMorgan Chase, meanwhile, reported record net income for the third quarter 2012 at USD5.7 billion, compared with net income of USD4.3 billion in the third quarter of 2011.   Earnings per share hit a record USD1.40, compared with USD1.02 in the third quarter of 2011.

Still, traders sold as the closing bell approached over fears the earnings will more likely disappoint than surprise.  Also, ongoing concerns that the global economy faces building headwinds sent stocks falling.

Leading Dow Jones Industrial Average performers included Boeing, up 1.44%, Hewlett-Packard, up 1.12%, and Wal-Mart Stores, up 1.08%.

The Dow Jones Industrial Average’s worst performers included Bank of America, down 2.36%, AT&T, down 1.74%, and Verizon Communications, down 1.28%.

European indices, meanwhile, finished lower.

After the close of European trade, the EURO STOXX 50 fell 0.72%, France’s CAC 40 fell 0.72% as well, while Germany’s DAX 30 finished down 0.68%. Meanwhile, in the U.K. the FTSE 100 fell 0.62%.