PIG(S) and the Korean conflict.

It was a promising start of the week with currencies trading all over the place and in different directions on the back of varying market drivers. The Euro and the sterling jumped out to some early gains on Monday with the weekend news of an EU and IMF bailout for Ireland of some Eur80-90B helping to bolster sentiment in the region.

The loser of the session was the NZD, which fell dramatically upon the unexpected news from S&P who have downgraded the currency’s rating from ’stable’ to ‘negative’ citing weakness in the resilience to foreign debt issues.

The Irish bailout triggered risk rally is rather short lived as market reversed during the London session after Mood's Investors Service warned that it may have multi-notch downgrade for Ireland. Moody's said in a note that the rescue package from EU/IMF would "crystallize more bank-contingent liabilities on the government balance sheet, and increase the Irish sovereign's debt burden". Previously, Moody's put Ireland on review and said it would likely cut the grade by one level. However, the increase in state debt would now exceed original expectations and a multi-notch downgrade" is "now the most likely outcome."

By Tuesday, risk sentiment deteriorated further amid euro zone debt concerns and geopolitical turmoil in Asia.

There are reports of North Korea firing the shells into South Korea that caused military, and even rumored to be civilian, casualties.

A high degree of risk aversion from continued widening of Irish, Portuguese, Greece, and most importantly Spanish Yields against the benchmark German yield is driving sentiment.

A very thin and volatile pre-Thanks giving on Wednesday and Thursday’s dead zone better known as Thanksgiving weekend. A market which is already horribly thin on the ground for liquidity as holiday in the U.S. results in reduced trading flows.

A relatively quiet day for data releases post the Thanksgiving holiday leaves markets more susceptible to events unfolding in the eurozone. Growing skepticism around both Greece and Ireland's future economic growth prospects, and the feasibility of projected deficit reduction programs this week, continues to drive fears of contagion amongst other periphery countries such as Portugal and Spain. While many questions remain around the form of Ireland's assistance, in particular the role investors will play in sharing the burden of any bailout, it is now becoming clear that withdrawal of ECB support to the eurozone banking system is less likely over the short term. The Spanish/German 10-year bond premium was at fresh record level over 255bps. The outright Spain 10-year yield tested 5.25%, which was wider by over 50bps in session (highest level since 2002).

The conflict on the Korean peninsula continued to escalate as North Korea considered declaring war against its southern neighbor due to arranged military drills with the US. There were later reports of artillery fired by North Korea, though it appeared to be part of military drills as it was contained within the northern borders.

The British pound has performed well against the euro. However, against the dollar and yen, we see the currency align itself in the risk scheme. With heavy exposure to Ireland, the UK is leveraging the weight already set by its own austerity measures. The GBP/USD has been slowly declining, but was not showing a bearish signal, until this week. This week, the Sterling finally gave way to the USD.

GBP/USD inability find support at 1.60 handle this week displayed marked bearishness that started on November 4^th. The pair broke down major support at 1.5650 by the end of the week. This drop has established a fresh one-month low for the pair and has given indication of a potential breakdown of the uptrend that has prevailed since the May lows. Further bearishness off the current support breakdown in the approach to December and the New Year is a distinct possibility.

For the coming, the bearish tone is expected to continue with resistance at 1.5675 and support at 1.54 handle.

PIG and China

PIG’s debt crisis and China took the spotlight from Fed's quantitative program last week. The US Dollar was boosted higher on risk aversion in the early part of the week but reversed as sentiments stabilized.

After initial refusal, Ireland finally signaled that they will accept bailout from EU. Irish Central Bank chief Patrick Honohan said that he's expecting a package worth "tens of billions" of euros to help the nation's banks, which were battered by the its property slump. EU, IMF and ECB officials are studying banks' books and would some sort of agreement might be reached soon, probably this week. The news helped Euro and Pound staged broad based recovery during the latter part of week. Despite the Irish “bailout” Eurozone debt crisis story is not expected to end with the markets will start to target Portugal. Also, note that Greece revised up its deficit in 2009 up to 15.4%f GDP, nearly 1.8% higher than prior forecast of 13.6%. Projection for 2010 deficit was revised up from 7.9% of GDP to 9.4%. Eurostat also revised up Greece's debt level figure of 2009 from 115% of GDP to 127% of GDP. So, Greece could be in queue again next to Portugal and the story could be never-ending.

By the end of the week, dollar recovered as the market sentiments was also weighed down by fear of more tightening in China. China raised the so called bank reserve requirement ratio by 50bps to "appropriately control" credit and loans. This was the second reserve increase in two weeks as inflation is viewed as a serious threat to the Chinese economy. There are still speculations that rate hike is imminent, in addition to the current measures.

GBP/USD has been on the downtrend since early November and last week fall found support at weekly Pivot Support S1. Then the pair corrected upward to 50% weekly fibo and by last day of the week it moved downward toward the previous week low and the 1.5950 level.

The pair intraday sentiment is still bearish with resistance at 1.6093. A break below 1.5950 could push the pair to below 1.5750 .

QE 2 has been factored into, USD on the uptrend on NFP.

USD traded higher across the board, also helped by comments from Treasury Sec Geithner denying US is willfully looking to devalue USD to boost its economy. Instead, Geithner notes, the recent inflows into emerging markets reflects confidence in the high growth rates of those countries. Over the weekend, several foreign officials voiced their opposition to the latest Fed move.

The US Dollar escalated to highs against most of the major currencies during early trading in Asia on the back of the stronger than expected US Jobs data that came out on Friday. The headline number for the October Non-farm payrolls rose to 151,000, which was much higher than the 60,000 that most economists had expected on Wall Street.

Fade out GBP/USD at 1.62 on Tokyo open. (24:00 GMT or 2:00 on the chart) with 100 EMA(50 EMA on 30 MTF) acted as resistance.. Enter short at 1.6195 with stop at 1.6215.

Managed to crossover the pivot support S1 with target of T2(1.609) within sight. Exit on pullback at pivot mS2 (1.6108).

Quantitative Easing 2

The biggest news this week and announced after the American Mid-term election, the Federal Reserve delivered slightly more than expected, a 600b program comparing to consensus of 500b in its new quantitative easing policy.

The highly-anticipated Federal announcement sent the US Dollar reeling.

For Sterling, the impressive GBP/USD is further supported by the surprising resilience in 3Q UK GDP reported 2 weeks ago, which led the BOE to refrain from its own QE2 this past week.

On the 1 HTF chart, GBP/USD has been on the uptrend within the ascending channel. The pair was capped by weekly pivot resistance R2 and the psychological level 1.63 .

For the coming week, the sentiment is still of the upward bias with support at 1.609 (31.8%) with immediate resistance at 1.63.

On Monday, I am expecting the GBP/USD to swing further downward with support 1.609.