China recently concluded its one-in-a-decade Communist Party meeting and heralded Xi Jinping on November 15 as the new General Secretary. Xi is widely expected and in line to become the next Chinese President. The top Chinese decision-making body, Politburo, also revealed the new Standing Committee members, with Vice Premier Li Keqiang expected to become Premier Wen Jiabao’s successor.
Meanwhile, after many months of promises of calling for an election, Japan’s Prime Minister Yoshihiko dissolved the parliament’s lower house and called for a change in leadership. A snap election on December 16 will be held and is expected to reveal a massive loss for Noda’s party, based on recent polls.
In the Middle East, Israel launched an attack in Gaza which reportedly killed the Hamas group’s military commander Ahmed Al-Jaabari, prompting Hamas to retaliate and deepen the conflict. Palestinian militants in Gaza purportedly hurled a long-range missile attacks to Tel Aviv. Egyptian Prime Minister Hisham Qandil visited Gaza and called for an international intervention and a peaceful resolution of the conflict.
Stocks and Commodities
Dow, S&P 500, and Nasdaq were all up on Friday on better prospects for an amicable settlement between President Obama and top Republicans and Democrats in dealing with the ‘US fiscal cliff’ scenario. In contrast, European indices all closed in negative territory amid several concerns in and out of the region. The snap election in Japan spurred a three percent rally in the Nikkei 225 Index. Meanwhile, Saudi and Israeli shares fell amid the Israel-Hamas conflict in Gaza. Saudi Arabia’s Tadawul Index fell to its lowest in nearly a month.
In the commodities front, Soybeans fell as China, cancelled 600,000 metric tons of purchase, a substantial purchase quantity from the biggest consumer of soybeans. Corn and wheat also slipped, with wheat posting its biggest decline since late 2011. Notably, the United States was the largest shipper of these three commodities in 2011. The US Energy Department said US crude stockpiles gained by 1.09 million barrels, while oil output rose for a 10th week, its largest since May 1994.
Oil is in danger of making an upside comeback if the Israel-Gaza conflict continues to escalate. Investors are concerned that the tension could disrupt Middle Eastern oil supplies. Meanwhile, gold remained quiet after posting a $60 upside move last week. Gold encroached itself in a tight $30 range all throughout this week while the $1,700 level retained support from buyers. A move beyond $1,800 and $1,700 is needed to attract fresh buyers and sellers.
Currencies
EURUSD stopped 30 pips short from erasing this week’s gains, closing at 1.2740. Buyers need to immediately regain their place between 1.2800 and 1.2900 to gain traction for another attempt at the 1.3000s. Otherwise, we could see the mid-1.2000’s before November ends.
Unlike EURUSD, GBPUSD succumbed to Dollar pressure and failed to end the week with a foothold above the weekly open. Even the gains for the last two days were not enough to put this pair in positive territory for the week. 1.6000 remains an important level for traders and we expect another tug-of-war when that area is revisited. In the near term, price needs to recapture 1.6100/1.6200 to erase the downside momentum which emanated from late-September.
Dollar bulls were unable to force USDJPY below the 79.00 level for the entire month of November. The result was an impressive 225-pip upmove printed this week, its largest weekly range in about a year. The 84.00 – 86.00 area is the next target and bulls can achieve this even before the month ends.
AUDUSD was evidently weak since the week opened, failing to take minor upside resistance at 1.0450 for the first two days. This attractive bearish momentum to take over, plunging the pair with three consecutive downdays until Friday. A solid breach of 1.0600 would end the current consolidation.
The Week Ahead
The coming week will be relatively busy, as each day is dotted with several key economic releases. On Monday, the market will look at New Zealand PPI, German Bundesbank President Jens Weidmann’s speech, and US Existing Home Sales; On Tuesday, Australia’s Monetary Policy Meeting Minutes, Reserve Bank of Australia’s Stevens’ speech, China’s Foreign Direct Investment, Japan’s Interest Rate announcement and Monetary Policy Statement, Bank of Japan press conference, Eurogroup meetings, US Building Permits, and US Fed Chairman Bernanke’s speech; Japan’s Trade Balance, UK’s Public Sector Net Borrowing and MPC Minutes, and US Unemployment Claims on Wednesday; China’s HSBC Flash Manufacturing PMI, France’s and Germany’s Manufacturing PMI, Canada’s Retail Sales, and Day 1 of the 2-day EU Economic Summit on Thursday; Germany’s Ifo Business Climate, and Day 2 of the 2-day EU Economic Summit, and Canada CPI data on Friday.
US and Japan will celebrate Thanksgiving Day on November 22 and 23, respectively.
