Daily Pivots: (S1) 117.57; (P) 121.09; (R1) 127.8

EUR/JPY’s rebound from 113.63 extended further to as high as 127.29, touching mentioned 4 hours 55 EMA. At this point, intraday bias remains on the upside as long as 118.13 minor support holds and further rebound could not be ruled out. Though, upside is still expected to be limited below 132.18 resistance and bring down trend resumption again. On the downside, below 118.13 will flip intraday bias back to the downside for retesting 113.63 low. Break will indicate recent fall has resumed for 200% projection of 169.96 to 147.03 from 156.84 at 110.98 next.
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Daily Report: FOMC in Focus, 50bps Cut Expected
Dollar and Yen recovers mildly today after Asian stock markets give back some earlier gains. DOW staged one of its best even rally of nearly 900 pts yesterday but after all, it’s still kept well below the important near term resistance of 9,785 and there is no change in the view that it’s merely in consolidations. Also, the key event risks of FOMC rate decision (today) and Q3 GDP release (tomorrow) haven’t past yet. Though, the development in USD/JPY worths attention. Recent volatility in the forex markets are mainly caused by de-leveraging as well as carry trade unwinding and hence both dollar and yen are strong across the board. Recent talk of yen intervention may halt the yen rally for a while but likely have little impact on dollar’s strength. Hence, after leading the forex markets for a while, the yen may pass the ball to dollar for taking lead. Technically speaking, USD/JPY has already taken out near term resistance of 97.91 in yesterday’s rally. Focus will now turn to 103.06 on whether whole decline from 110.66 is still in progress, or has completed.

FOMC rate decision will take center stage today. Futures markets are pricing in full probability of a 50bps cut to 1.00%, with around 40% chance of 75bps cut. Note that since 1960s, the federal fund rate has been at 1% only once before, from late June 2003 to late June 2004. One of the focus is definitely on whether the Fed will affirm markets’ expectation of another rate cut in Dec. Also, note that markets have been very sensitive to dovish comments from Bernanke on the economy recently. Hence, the paragraphs on economic outlook will be heavily scrutinized.

On the economic data front, New Zealand trade deficit came in wider than expected at -1183m. Japanese industrial production unexpectedly rose 1.2% mom, 0.4% yoy in Sep. US durable goods orders will be released too and is expected to show the second consecutive month of contraction by -1.2% in Sep. Germany HICP is expected to moderate sharply from 3% to 2.6% yoy in Oct.
By ActionForex

EUR/USD Weekly Outlook

EUR/USD’s down trend resumed last week and fell sharply to as low as 1.2496. Friday’s recovery after drawing support from the short term fall channel, with 4 hours MACD crossed above signal line, argues that a short term bottom might be in place. Though, break of 1.2754 minor resistance is needed to confirm. Otherwise, intraday bias remains on the downside and further fall should be seen to 100% projection of 1.4867 to 1.3258 from 1.3768 at 1.2159 next. Break of 1.2754 will bring stronger recovery to 1.3004 resistance or above. But upside should be limited by 1.3258 resistance and bring down trend resumption.

In the bigger picture, some key important long term support levels were taken out last week without much hesitation. The strength of the fall as well as the breaking of 100% projection of 1.6038 to 1.3381 from 1.4867 at 1.2710 reinforces that case that whole decline from 1.6038 is developing into a five wave impulsive fall. As mentioned before, if this is true, EUR/USD is probably still in the middle of it and should eventually extend to below 1.1639 key long term support before making a medium term bottom. Break of 1.3768 resistance is needed to invalidate this view and indicates that a medium term bottom is formed earlier than we thought. Otherwise, medium term outlook will remain bearish even in case of strong rebound. Read the rest of this entry »

Gold rose after the lowest price in more than a month attracted investors. Silver also gained.

Gold dropped 8.3 percent last week, touching $772.20 an ounce, the lowest price since Sept. 15. UBS AG said gold will trade at $800 in one and three months, compared with previous forecasts of $925 and $975.

“After the recent declines, gold has found some support from Indian physical demand,” said John Reade, a UBS metals strategist in London. “Other Asian demand has picked up, too. Although safe-haven buying of gold continues at a good pace, this buying is insufficient to counter financial flows.”

Gold futures for December delivery rose $9.80, or 1.2 percent, to $797.50 an ounce at 9:06 a.m. on the Comex division of the New York Mercantile Exchange. The metal reached a record $1,033.90 on March 17.

Silver futures for December delivery climbed 22.5 cents, or 2.4 percent, to $9.56 an ounce. The price dropped 12 percent last week.
By Pham-Duy Nguyen

Oil price retreated to 73.77 in European opening after rising to 76.12 ($0.97 below our mentioned resistance at 77.09) yesterday. Strength of the dollar against Euro is the main reason weighing on the black gold as the 2 has correlation of as high as 0.6 out of 1.0.

USD traded at 18-month against Euro at 1.3239 after FED chairman Ben Bernanke’s endorsement on another bill to stimulate US economy. Bernanke advised lawmakers to consider measures to help consumers, homebuyers, businesses and other borrowers to access credit and to promote economic growth and job creation.

Crude oil rose earlier on expectations that OPEC would reduce output significantly at an emergency meeting on Oct 24. Market expectations of production cut have been raised by 1M bpd to over 1.5M bpd after OPEC president Chakib Kehlil and Iran Minister’s requests of 2M and 2-2.5M bbls, respectively. Although a trim is definite, the amount is controversial and would affect price outlook. If eventually, only a 1M cut was announced, it would definitely disappoint and cause another round of selloff of oil. Moreover, a 1M bpd reduction would be offset by a 3M bbls daily production by the cartel.
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Daily Pivots: (S1) 1.1771; (P) 1.1875; (R1) 1.2011

USD/CAD’s rally resumes and is back pressing 1.2129 high in early US session. At this point, intraday bias remains on the upside as long as 1.1940 minor support holds. Break of 1.2129 will confirm that medium term up trend from 0.9056 has resumed. Next short term target will then be 200% projection of 0.9823 to 1.0819 from 1.0297 at 1.2289. On the downside, below 1.1940 will turn intraday outlook neutral first.

In the bigger picture, preferred interpretation of the up trend from 0.9056 is that first wave rally is completed at 1.0248. Subsequent second wave consolidation was in form of triangle and finished at 0.9823. Rise from there is treated as third wave rally and is still in the acceleration phase. In other words, USD/CAD is just in the middle of a long term up trend which should extend beyond 1.2737 resistance to 261.8% projection of 0.9056 to 1.0248 from 0.9823 at 1.2944. Also, while interim consolidation could be seen, downside should be contained above 1.0819 resistance turned support and bring up trend resumption. Break of 1.0819 is needed to invalidate this view.

Mid-Day Report: Dollar and Yen Rallies Continue, BoC Cut 25bps Only
Dollar extends rally is early US session with dollar heading closer to 84 level. EUR/USD’s break of 1.3258 low earlier today triggered some stop orders on long positions which aided dollar’s rally. In addition, Euro is pressured by renewed speculations that ECB will cut rates again as the downturn in Eurozone economy is intensifying. The greenback is also boosted by weakness in commodity prices which see gold breaches $770 level while crude oil weakens to below $73. Dollar demand for settlement of Lehman Brothers CDS as well as hope for second stimulus package from US government continue to support the greenback too. On the other hand, the Japanese also strengthens further after FTSE 100 and DAX turned negative follow a brief rally earlier today. US stocks also opened mildly lower.

Bank of Canada cut overnight target rate by 25bps only to 2.25%. Markets expected a 50bps cut. The bank said in the statement that together with the 50bps cut on Oct 8, there are already 75 bps cut and should provide timely and significant support to the Canadian economy. The bank also noted that policy rate was lowered by accumulative 225bps since last December. Though, easing bias is still maintained as “some further monetary stimulus will likely be required.” The less that expected rate cut provided little support to the Loonie as USD/CAD is set to retest 1.2129 high.

Elsewhere, Sterling also softens in general today after CBI reported that balance of UK firms who had seen total order book levels deteriorate over the third quarter fell to -39%, the lowest level since October 2003. Swiss Trade surplus was unchanged at 1.44b in Sep. RBA Governor Stevens said earlier today that the aggressive rate cut and fiscal stimulus will “lessen the extent of the likely slowdown in Australian’s economy”. Measures by central banks to improve liquidly seemed to be working well and there risk of a “global catastrophe” has improved. New Zealand CPI rose 1.15% qoq in Q3, pushing yoy rate to 18 year high of 5.1% as expected.
By ActionForex

Daily Pivots: (S1) 134.27; (P) 136.41; (R1) 138.03

EUR/JPY weakens further to 133.78 today and at this point, more downside is expected as long as 138.65 minor resistance holds. Retest of 132.19 low is in favor. Break will confirm that recent down trend has resumed for next long term fibonacci level at 129.46 (50% retracement of 88.97 to 169.96). On the upside, though, above 138.65 will suggest that consolidation from 132.19 is still in progress for another test of 141.73 before completion. But still, upside should be limited below 147.03 resistance and bring down trend resumption.

In the bigger picture, the sharp fall from 169.96 is still in progress and has taken out long term fibonacci level of 38.2% retracement of 88.97 to 169.96 at 139.02 without hesitation. The development so far suggests that fall from 169.96 is developing into a five wave decline and EUR/JPY is probably in the middle of it only. Medium term outlook will remain bearish as long as 147.03 support turned resistance holds and another fall is still expected even in case of correction, targeting 61.8% retracement of 88.97 to 169.96 from at 119.90.

Dollar continues to ride on hope of a second stimulus package from the US government. Dollar index remains firm above 83 level and is set to extend recent rally. USD/CHF took the lead yesterday by breaking 1.1486 high and extends strength to 1.1544 today so far. EUR/USD edged down to new 19 months low. More importantly, note that the Japanese yen is catching up with the strength in dollar and rises against all major currencies. Markets are generaly cautious over Lehman CDS settlement today and the relatted impact on the credit markets. Such concern will likely provide further short term support to the dollar and yen.

RBA Governor Stevens said earlier today that the aggressive rate cut and fiscal stimulus will “lessen the extent of the likely slowdown in Australian’s economy”. Measures by central banks to improve liquity seemed to be working well and there risk of a “global catastrophe” has improved. New Zealand CPI rose 1.15% qoq in Q3, pushing yoy rate to 18 year high of 5.1% as expected. Looking ahead, the economic calendar is rather light today and main focus is on BoC which is expected to cut rates by 50bps to 2.00%.
By ActionForex

Gold futures in Hong Kong relaunched trading on Monday on the back of an
increased interest on gold, the Hong Kong Exchange and Clearing (HKEx) said in
a statement on Monday.

Gold futures were first introduced to the Hong Kong Futures Exchange in
1980 but trading of the product was suspended in 1998.

Gold futures’s trading hours in Hong Kong are from 8:30 am to 5:00 pm
(0030 GMT to 0900 GMT), with no break for lunch. The contract size is 100 troy
oz [one troy oz equals 31.1 grams], with the three contract months
available for trading, including spot month and the next two calendar months.
Cash settled is in US dollar.

Market participants include individual and institutional investors,
bullion dealers, banks and corporations in gold businesses.

“This is an ideal time to have gold futures in Hong Kong, not only
because of the interest in the commodity, but also the greater volatility we
are seeing in its price,” HKEx Chairman Ronald Arculli said at gold futures
launch ceremony in Hong Kong.

“The annualised 30-day volatility of gold has jumped from 10% in August
2007 to 50% in August this year. So gold futures trading here will enable
investors to guard against unexpected moves in the international gold market
as well as capture trading opportunities.”

According to Arculli, Hong Kong is also mainland China’s largest trading
partner for gold, which, according to the World Gold Council, has been the
world’s largest gold producer since 2007. “Our city accounts for 20% to 30% of
Asian gold exports, making it an important trading hub,” he added.

by Wendy Shair