20131017

Good morning,

Risk taking got a boost yesterday, as the US Congress passed a bill to increase the debt ceiling until February 2014, which in particular benefited US equities (S&P500 +1.4%, Dow Jones +1.4% and Nasdaq +1.2%). The reaction was not so explicit in currency and fixed income markets, as market players had been positioning towards a solution ahead. Smart money have a tendency to be moving ahead of other flows and typically, the bond market has historically been ahead of equities as more institutional flow passes this market. These news should also postpone the decision from the Fed to taper most likely till early 2014. Decent earnings from the Q3 earnings session in the US, supported the positive mood with financials outperforming.

The relatively good news from the US triggered optimism in the Asian region, but FX markets have shown JPY longs being added to portfolios. Asian investors have been buying the rumor and are selling the fact regarding the US debt ceiling negotiations as JPY-pairs have reached key technical levels. USD/JPY is down around 60 pips, finding support at the 50- and 100-day SMAs after being rejected at the Ichimoku Cloud ceiling. Despite JPY on the bid, Nikkei traded up 0.6% and ASX up 0.4% along with an increase in the Aussie, taking out the highs from September at 0.9528.

Today, markets will digest the news from the US, and a pretty uneventful calendar from the Euro zone will shift focus towards the UK Retail Sales for September, which are expected to increase 0.4%. GBP/USD is looking soft below 1.5885 and EUR/GBP is battling the 50-day SMA at 0.8466.

Later in the session, the October Philly Fed index will be interesting as it is one of the first leading indicators. Markets are expecting a move to 15.0 vs. 22.3 prior, which could destroy short term upside, should the index come out lower than expected.

Have a nice day.